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Risk Reminder
There is a possibility to suffer risk when providing liquidity on Depth. Please research and understand the risks involved before proceeding with any operation.
1. Smart Contract Bug or Attack
Depth's smart contracts have been audited by a third-party security audit agency. However, security audits do not completely eliminate risk. Please do not use your savings as a source of liquidity providing on Depth. Otherwise it might lead to a huge loss, especially when you are the liquidity provider. Even though swapping on Depth has a relative low risk, it cannot be considered as the advice of investment.
2. Impermanent Loss Caused by Price Fluctuation/Permanent Loss due to Decoupling of a Certain Stablecoin
The Depth model is based on AMM model, which is common in the DeFi world. In all AMM models, there could be a impermanent loss caused by price fluctuation. It is called impermanent loss because as long as the token's relative price goes back to its initial state (when user provided liquidity), the loss will disappear. If users withdraw the liquidity before the ratio in the pool return to the initial state, the loss will become to be a permanent one.
The various types of stablecoins in the market may have various risks of their own that may cause them to decouple from the price of their underlying. If one of the stablecoins in the pool has a price peg ratio (i.e. Peg ratio) that is significantly lower than 1 and does not back to a 1:1 for a long time, then it is likely that the majority of the stablecoins held by the liquidity provider in the pool will be decoupled. Liquidity providers may suffer permanent loss in terms of the value of the underlying.
3. Risks of Other Related Protocols
When you use multiple smart contracts for staking/market making/swapping in the DeFi world, each smart contract has its own risks.
For example, the Channels/Filda/LendHub/Pilot/Coinwind/Venus/Alpaca/BACK liquidity pool connected to Depth may also be at risk. The reason why Depth established the lending pool is because the lending protocol can provide a better APY for stablecoins. But in the lending pool of these stablecoins, you may be at the following risks:
•Channels/Filda/LendHub/Pilot/Coinwind/Venus/Alpaca/BACK lending protocol has its own smart contract risks
•Smart contract risks of Depth's Channels/Filda/LendHub/Pilot/Coinwind/Venus/Alpaca/BACK pool
•The stablecoins in these pools have their own contract risks and price stability issues, such as the risk of USDT turning to zero, the failure of the oracle of the lending protocol, and the risk of bugs or attacks on the stablecoin contracts
As users of DeFi protocols, please do not underestimate the risks associated with liquidity providing on Depth or other DeFi protocols. Even after a long period of operation and testing, as well as continuous technological advancement, the existance of these risks cannot be denied.
4. Private Key Risk
The admin key has the highest authority managing the contracts. It could modify mining parameters( such as the weight of the mining pool, adding new stablecoin mining pools, etc). In extreme and urgent situation, the admin key may suspend the contract.
The core volunteer team will use the key only at the initial stage when the contract needs to be upgraded and when the mining parameters need to be adjusted. A DAO governance model will be adopted when the contract has moved to a maturity stage. A Timelock mechanism and Multi-Sig mechanism will also be added to the smart contract to avoid the risk of centralization.
Last modified 2mo ago