Exchange Failure Risk
In the first stage of the project, we are exposed to exchange failure risk. However, when we enter later stages, the protocol will use more exchanges, thus diversifying away this risk.
Last updated
In the first stage of the project, we are exposed to exchange failure risk. However, when we enter later stages, the protocol will use more exchanges, thus diversifying away this risk.
Last updated
No matter how sound, there are always exchange failure risks. At our early stage, we recognize that our product relies heavily on Drift Protocol exchange, and we have seen no remote evidence of insolvency or user-security issues from said exchange. Drift Protocol is also the largest and most reliable platform in the space, and it has been extensively audited.
At the project enters later stages, Setora Labs will use more exchange, thus diversifying away this risk.
DeFi exchanges, including Drift Protocol, are subject to the risk of bugs or exploits in their smart contracts or user interfaces, which could lead to unexpected behavior and loss of funds. This risk is inherent to all smart contracts and depends on the diligence of the development community, core contributors, and auditors.
Oracles are services that supply external data, such as asset prices, to exchanges' blockchain smart contracts. There is a risk that these oracles might report incorrect prices, potentially leading to wrongful liquidations and loss of funds on exchanges. To mitigate this risk, Drift Protocol has implemented several around new oracle data.
Socialized loss happens when losses on the platform are distributed across the deposits and positions of all users. This can occur in rare events such as untimely liquidations, where positions and balances are not liquidated in time to cover the losses of the liquidated user, and leveraged losses, where traders with leveraged positions lose more than their collateral value. To mitigate this risk, Drift Protocol employs strict risk management measures and establishes insurance funds for each asset class, which absorb losses before they are distributed to all exchange users.