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 - $10m | 500k - 1m |
saddleUSD-V2 | Refer to Stablecoin Pool V2 | | | | | |
alETH is a synthetic ETH backed asset by Alchemix Finance. alETH is an ERC20 token, backed 4:1 by ETH.
Market risks: alETH is backed by ETH in the 4:1 ratio. At present, the market capitalization for alETH is over US$ 41 million.
Notable incidents: The following incidents and/or bugs were observed relating to the protocol:
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.
Market risks: alUSD is yield-backed by depositing the DAI stablecoin. At present, the market capitalization for alUSD is $251,612,072 and a circulation coin supply of 252,895,826.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Smart-contract risks: The DAI smart contract was launched in November 2019 (prior to Nov 2019, it was active as SAI starting December 2017), making it a mature contract. The number of transactions since launch stands at over 11 million. The total amount transacted is over 580 million DAI, with a median of ~ 998 DAI.
Counter-party risks: MakerDAO develops and maintains the software that powers the DAI stablecoin system. MKR holders govern the Maker Protocol, which includes adjusting policy for the Dai stablecoin, choosing new collateral types, and improving governance itself. There are 380,957 token holders at the time of writing.
Market risks: Users can generate DAI as debt by depositing equivalent collateral in a smart contract governed vault. At present, the market capitalization for alUSD is over $5.7 billion and a circulation coin supply exceeding 5.7 billion.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
FEI is a scalable and decentralized stablecoin that leverages protocol-controlled value (PCV) for peg maintenance while maintaining highly liquid secondary markets.
Market risks: Fei is a direct incentive stablecoin which is undercollateralized and fully decentralized, with the goal to maintain a liquid market in which ETH/FEI trades closely to the ETH/USD price. At present, the market capitalization for FEI is $ 415,899,906 and a circulation coin supply of 417,462,622.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
FRAX is a fractional-algorithmic stablecoin that is partially backed by collateral and partially stabilized algorithmically.
Counter-party risks: The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC. The Frax governance module is forked from Compound, with FXS acting as the voting token in the system. There are 1,615 token holders at the time of writing.
Market risks: Frax is open-source, permissionless, and entirely on-chain. At present, the market capitalization for FRAX is more than $300 million.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Counter-party risks: Liquity is a decentralized borrowing protocol that allows interest-free loans against Ether as a collateral. Liquity as a protocol is non-custodial, immutable, and governance-free. There are 2,778 token holders at the time of writing.
Market risks: The loans are secured by a Stability Pool containing LUSD. At present, the market capitalization for LUSD is $ 603,016,411.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Counter-party risks: Ren project is a trustless, decentralized virtual machine, which connects blockchains via the REN tokens. The Ren project aims to be the leading decentralized universal interoperability protocol in the crypto ecosystem. There are 3,062 token holders at the time of writing.
Market risks: At present, the market capitalization for renBTC is more than $679 million and a circulation coin supply of 13,817.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Counter-party risks: Synthetix is a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets. The key decentralised autonomous organisations (DAOs) are the - Spartan Council, Protocol DAO, Synthetix DAO, Ambassadors DAO and the Grants DAO. There are 1,342 token holders at the time of writing.
Market risks: Synthetix is composed of a smart contract infrastructure and a set of incentives which maintains Synth prices. At present, the market capitalization for sBTC is over $176 million and a circulation coin supply of 3,576.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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).
Counter-party risks: Synthetix is a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets. The key decentralised autonomous organisations (DAOs) are the - Spartan Council, Protocol DAO, Synthetix DAO, Ambassadors DAO and the Grants DAO. There are 2,044 token holders at the time of writing.
Market risks: Synthetix is composed of a smart contract infrastructure and a set of incentives which maintains Synth prices. At present, the market capitalization for sETH is over $346 million and a circulation coin supply of 104,954.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
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.
Counter-party risks: Synthetix is a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets. The key decentralised autonomous organisations (DAOs) are the - Spartan Council, Protocol DAO, Synthetix DAO, Ambassadors DAO and the Grants DAO. There are 12,576 token holders at the time of writing.
Market risks: Synthetix is composed of a smart contract infrastructure and a set of incentives which maintains Synth prices. At present, the market capitalization for sUSD is over $288 million and a circulation coin supply of over 288 million.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Counter-party risks: tBTC is a safe and permissionless bridge between BTC and ETH. The first version of tBTC has been built with no ability to upgrade contracts, following a Bitcoin-inspired philosophy of immutability and opt-in governance. Any future versions of tBTC will be new systems, and require social coordination to “upgrade”, like how a hard fork might on Bitcoin. There are 32 token holders at the time of writing.
Market risks: At present, the market capitalization for tBTC is $ 42,688,862 and a circulation coin supply of 873.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
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.
Market risks: USDC has gained wide adoption since its inception because of its easy integration with all ERC-20 compatible wallets. At present, the market capitalization for USDC is ~ $27 billion and a circulation coin supply of ~ 27 billion.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
USDT, like USDC, is pegged 1:1 to the USD. It’s the oldest USD backed stablecoin.
Market risks: USDT is the most widely integrated digital-to- fiat currency today. At present, the market capitalization for USDT is ~ $65 billion and a circulation coin supply of ~ 65 billion.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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.
Counter-party risks: Merchants perform key roles for the WBTC community as administrators who start minting newly wrapped tokens and burning wrapped tokens which are performed by the Custodians. There are 35,930 token holders at the time of writing.
Market risks: Minting in the wrapped framework is started by a merchant and performed by a custodian. At present, the market capitalization for wBTC is over $9 billion and a circulation coin supply of over 194,000.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
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.
Counter-party risks: Wrapping CUSD to wCUSD is permissionless and so is the reverse process to unwrap. There are 7 token holders at the time of writing.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
· None at the time of writing.
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.
Counter-party risks: Wrapping ETH to wETH is permissionless and so is the reverse process to unwrap. There are 225,770 token holders at the time of writing.
Market risks: Users can verify that WBTC is fully-backed via on-chain proof of reserves. At present, the market capitalization for wETH is over 3.7 billion (fully diluted) and a total coin supply of over 1.1 million.
Notable incidents: The following incidents and/or bugs were identified relating to the protocol:
- None at the time of writing.
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