UXD Protocol
Below we outline the risk factors that may cause a de-pegging of UXD to USD, or a loss of principal value to UXD holders. All decentralized stablecoins assume some amount of risk by their nature.

Risk Factors

We view the following as the primary risks faced by UXD stablecoin, although there may be other "unknown unknowns" not included in the below list.
  • Smart Contract Risk: By definition, a decentralized stablecoin must rely on smart contract code for its existence. If a smart contract written by UXD Protocol, or an underlying derivative exchange contains a critical bug, user funds may be irrevocably lost and UXD may no longer be fully collateralized.
  • Negative Funding Rates: If the perpetual futures funding rates are negative for a period long enough to cause full depletion of the insurance fund, and if UXD holders have not redeemed their UXD stablecoin for assets by such time, UXD holders may become undercollateralized due to continued negative funding rates.
  • Insurance Fund Asset Management Risk: The insurance fund will be deployed in asset management strategies for the benefit of UXD Stakeholders. If these asset management strategies carry unforeseen risk or if funds are lost due to exploitative hacks, UXD holders may become undercollateralized due to negative funding rates.
  • Insufficient Liquidity to Exit UXD Positions: If the underlying derivative exchanges experience significant illiquidity in their perpetual futures markets, at the same time that a large number of UXD holders are attempting to redeem UXD for crypto assets, there may be insufficient liquidity to immediately redeem UXD for crypto assets.
  • Supply/Demand Imbalance: Although the mint/redeem functions on UXD's website will allow unrestricted users to swap UXD for underlying crypto assets, there may be cases in which UXD trades off its peg on secondary markets. This may be due to a front-end application bug for the mint/redeem process, or a variety of other market conditions caused by an imbalance of supply/demand.
  • Force position closure: If many of UXD's counterparties are trading on significant margin, and the underlying market is sufficiently illiquid, UXD could be force closed out of its positions, potentially disrupting the mechanics of the delta-neutral position.
Copy link