Asset Specific Risks
Before we accept a cryptocurrency for the Saddle pools, we evaluate the underlying risks for the assets and operations of the asset.
Investing in cryptocurrencies varies in risk. The cryptocurrency assets in the various Saddle protocols are an integral part of the Saddle ecosystem. Any risks to the assets may negatively impact the pool.
Before we accept a cryptocurrency for the liquidity pools, we evaluate the underlying risks for the assets and operations of the asset. If one or more risks are significant, we don’t accept the cryptocurrency for the Saddle pools. The three main risk evaluation parameters are:
Smart-contract risks: DeFi is a complicated network interconnected through hundreds of smart contracts created by various 3rd parties. Typically, smart contracts undergo code reviews, security audits, and bug bounty programs - yet that doesn’t absolve the contracts of any technical glitches and bugs entirely. When Saddle evaluates a cryptocurrency asset for our liquidity pools, we focus on the maturity, besides many other parameters, of the smart contract. The age of the smart contract and the community adoption (specifically the number of transactions) is a powerful indicator of the smart contract robustness.
Counter-party risks: Counterparty risk relates to a 3rd party defaulting on its contractual obligation. Though open blockchain networks and DeFi are designed with the goal of eliminating counterparty risks, some cryptocurrency assets carry the counterparty risk because of their design. Digital assets tied to real-world assets, dependent on external Oracles for information, and centralized are few examples of counterparty risk. At Saddle, we qualitatively evaluate counterparty risks from a trust and governance point of view.
Market risks: We primarily relate fluctuations and liquidity to the market risks of cryptocurrencies. Stablecoins and pegged-value assets, which make up the Saddle pools, address the volatility to an extent. However, if one asset in the pool significantly depegs, it will effectively mean that it will leave pool liquidity providers holding only that asset. Liquidity risk may happen because of a seller not finding a buyer or there is a mandatory lock-in period.
In this section, we will examine the risks for each asset in the Saddle pools composition. The information provided is as of the 3rd week of Aug 2021.
Asset
Age
Transactions
Governance
Holders
MCAP ($)
Supply
BTC Pool
renBTC
> 1 year
10k - 100k
Decentralized
1k - 5k
$100m - $1b
< 500k
sBTC
> 2 years
10k - 100k
Decentralized
1k - 5k
$100m - $1b
< 500k
tBTC
> 1 year
< 10,000
Decentralized
< 1,000
$10m - 50m
< 500k
wBTC
> 2 years
100k - 500k
Decentralized
10k - 100k
> $5b
< 500k
alETH Pool
alETH
< 1 year
10k - 100k
Decentralized
< 1,000
N/A
N/A
sETH
> 2 years
10k - 100k
Decentralized
1k - 5k
$100m - $1b
< 500k
WETH
> 2 years
> 1m
Decentralized
100k - 1m
> $1b
1m - 10m
Stablecoin Pool V2
DAI
> 1 year
> 10m
Decentralized
100k - 1m
> $5b
> 5b
USDC
> 2 years
> 10m
Centralized
> 1m
> $5b
> 5b
USDT
> 2 years
> 10m
Centralized
> 1m
> $5b
> 5b
D4 Pool
alUSD
< 1 year
< 10,000
Decentralized
< 1,000
$100m - $1b
100m - 1b
FEI
< 1 year
10k - 100k
Decentralized
1k - 5k
$100m - $1b
100m - 1b
FRAX
< 1 year
100k - 500k
Decentralized
1k - 5k
$100m - $1b
N/A
LUSD
< 1 year
100k - 500k
Decentralized
1k - 5k
$100m - $1b
N/A
sUSD Pool
sUSD
> 2 years
500k - 1m
Decentralized
10k - 100k
$100m - $1b
100m - 1b
saddleUSD-V2
Refer to Stablecoin Pool V2
wCUSD Pool
wCUSD
< 1 year
< 10,000
Decentralized
< 1,000
$1m - $10m
500k - 1m
saddleUSD-V2
Refer to Stablecoin Pool V2
alETH
alETH is a synthetic ETH backed asset by Alchemix Finance. alETH is an ERC20 token, backed 4:1 by ETH.
Notable incidents: The following incidents and/or bugs were observed relating to the protocol:
alUSD
alUSD is a yield-backed synthetic stablecoin minted via Alchemix Finance. Users deposit DAI stablecoin to mint alUSD which tokenizes upto 50% of the DAI deposited.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
DAI
DAI is a stablecoin or ERC-20 token backed by different digital currencies deposited into its smart contract vaults. DAI attempts to maintain a 1:1 peg to USD.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
FEI
FEI is a scalable and decentralized stablecoin that leverages protocol-controlled value (PCV) for peg maintenance while maintaining highly liquid secondary markets.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
FRAX
FRAX is a fractional-algorithmic stablecoin that is partially backed by collateral and partially stabilized algorithmically.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
LUSD
LUSD is a collateral-backed stablecoin with a hard price floor of $1 USD. Users of the Liquity protocol (the issuers of LUSD) lock ETH for LUSD stablecoin. There’s only a one-time borrowing fee applicable.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
renBTC
renBTC is an ERC20 token backed 1:1 by Bitcoin. Ren also decentralizes the custody of the BTC. User’s deposit BTC to RenVM, which holds that BTC and mints renBTC with 1:1 ratio.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
sBTC
sBTC differs from the rest, as Bitcoins does not back it. The value of sBTC is kept stable through an over-collateralization mechanism leveraging Synthetix SNX tokens.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
sETH
Synthetix is a decentralised synthetic asset issuance protocol built on Ethereum. These synthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the contract enables the issuance of synthetic assets (Synths).
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
sUSD
sUSD is a synthetic USD token created by staking Synthetix Network Token (SNX) or ETH in Synthetix, a decentralized synthetic asset issuance protocol built on Ethereum.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
tBTC
tBTC is an open-source project of Keep, Summa and the Cross-Chain Group. tBTC, an ERC-20 token, is backed 1:1 by Bitcoin and truly decentralized.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
USDC
USDC is an ERC20 token pegged 1:1 to the US dollars (USD). USDC is issued by regulated financial institutions, backed by fully reserved assets, redeemable on a 1:1 basis for US dollars, and governed by Centre, a membership-based consortium that sets technical, policy and financial standards for stablecoins.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
USDT
USDT, like USDC, is pegged 1:1 to the USD. It’s the oldest USD backed stablecoin.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
wBTC
Wrapped BTC is an ERC20 token backed 1:1 by the actual Bitcoin. Users can swap their BTC for WBTC through merchants, like Kyber, Set Protocol, Ren, etc.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
wCUSD
Wrapped Celo Dollars is an ERC20 token, representing a 1:1 share of Celo Dollar (CUSD). wCUSD provides a simple and secure bridge to Ethereum’s DeFi ecosystem.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
· None at the time of writing.
WETH
ETH was the proto-token of the Ethereum Alt tokens, which means it was built before the ERC-20 standard existed. Wrapped ETH is an ERC20 token backed 1:1 by ETH, allowing trade directly with ALT coins.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
None at the time of writing.
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