Risks
Introduction#
youves is a novel and experimental software platform with a considerable complexity. With the youves governance mechanisms, the platform will be improved and strengthened on an ongoing basis. Please note that you assume all risks in connection with your access and use of the platform, its features and functionalities. If you are a resident of the United States of America, you may not access the platform.
Protocol Level Risks#
The platform and its smart contracts are built on the Tezos blockchain. Therefore, any potential defect of Tezos may affect the platform as well.
Infrastructure Risks#
Besides the functioning of the Tezos blockchain, an orderly interaction with the platform depends on a number of aspects, such as sufficient internet access.
Economic Incentive Risks#
Great care has been put into the design and functioning of the platform. It cannot be excluded, however, that unforeseen combinations of various events create situations in which the platform's incentive structure no longer supports the continuous operation of the platform.
Market Risk#
Markets in crypto currencies are volatile and an exposure to these assets is inherently risky.
Using a vault to mint and sell youves tracker tokens allows for the build-up of leverage in the underlying collateral. This leverage will amplify both positive and negative market movements.
There is a risk of gap events in the price of the involved assets, meaning that the prices could experience sudden material, discontinuous and adverse changes. These kinds of changes could prove to be too fast and too large for the safety measures of the platform to react.
Oracle Risk#
Oracles are the interface through which smart contracts receive data from the real world. This includes any data input which is not purely on-chain originated and in particular price information into the blockchain world. Oracles are a potential single point of failure. If a smart contract receives stale and/or incorrect information from an oracle, its proper functioning is in jeopardy. It is also very difficult to catch this type of malfunction without additional data sources. At the same time the computational limits of smart contracts create a strong incentive to place as much program logic off-chain into the oracle, which only exacerbates the issue. Hence the careful design of oracles is of critical importance.
Risk of Holder Conversion Rights for Minters#
Minters run the risk that holders of youves tracker tokens ask them to deliver collateral in the value of the holder's conversion right strike price times the number of youves tracker tokens exercised by the holder which is below the target price. Right before exercising the conversion right, the youves tracker token will likely be worth less than the strike price, so the selected minter will probably pay more for the youves tracker token than the prevailing market price.
Risk of Bailout / Minter Conversion Right for Stable Token Stakers#
Holders of youves tracker tokens that choose to stake them in the monitor conversion pool run the risk that a minter will exercise its conversion right. As a result, holders then have to deliver youves tracker tokens against collateral in the value of the minter's conversion right strike price times the number of the minter's youves tracker tokens. Right before exercising the conversion right, the youves tracker token will likely be worth more than the strike price, so the selected holder will probably receive less for its youves tracker tokens than the prevailing market price.
Governance Token Staker / Stability Mechanism Risk#
Holders of governance tokens that choose to stake their governance tokens in the staking pool run the risk of losing some or all of their staked governance tokens in case the stability mechanism gets activated.
Liquidation Risk#
Minters need to maintain adequate collateral levels in vaults, otherwise they run the risk of being partially or fully liquidated by a third party and paying out a bonus out of their excess collateral.
Underlying Reference Asset Risk#
Depending on their nature, reference assets of a youves tracker token may experience strong adverse price movements driven by regulatory action or, in case of crypto assets, because of software errors. This price move will be reproduced by the youves tracker token.
Tracking Risk#
The youves tracker token has a soft peg and it does not guarantee to track the target price exactly at all times. Even though there are mechanisms in place which aim to facilitate close tracking, the value may diverge above or below the target price for extended periods of time.
Smart Contract Risk#
Smart contracts used for the platform are inherently complex and may contain errors. There is a formal deployment process for the smart contracts in place including a professional review. A risk remains, however, that certain code errors are undiscovered.
User Risks#
There is a risk of user-initiated errors. The platform cannot reverse transactions.
Risk of Malicious Operators#
There is the risk of malicious hack attacks on the platform's smart contracts.
Furthermore, the platform works with economic incentives to encourage certain user behaviour. In theory, a malicious operator with access to large funds and no intention of making money could ignore the incentive structure of the platform and create unintended outcomes.
Governance Risk#
Currently there is a governance process in place, which is controlled by a group of keyholders that have an interest in the success of the platform. One key is held by ubinetic AG and six keys by six parties that are independent of ubinetic AG. Known and trusted tech teams in the Tezos ecosystem were selected as independent parties. This process is decentralised to an extent. However, it is less transparent and more centralised than a process using voting via governance tokens. It is planned to change to such a process with governance tokens, once a sufficiently large amount of YOU tokens have been claimed.