Stablecoin Risk Dimensions

Exponent analyzes a selection of stablecoins based on both on-chain and off-chain risk dimensions. This living document serves as a framework for risks we evaluate for stablecoins. 
Risk dimension
Description
Category
Example
US Regulatory Enforcement risks
risks of regulatory enforcement and state level coercion
fundamental risks
OFAC sanctions push projects to preemptively ban Tornado cash users
Censorship risks
risks of being censored by issuers ie. address blacklisted
quantifiable risks
Tether black list addresses from a USDT transfer
Liquidity risks
risks of assets having insufficient liquidity in secondary market, leading to inability to buy/sell against the asset.

including in this dimension is redemption
the ability to redeem stable coin against underlying collateral

velocity or transfer volume factors into a liquidity premium instead of simply idle LP farm
quantifiable risks
stETH holder inability to redeem LSD against underlying ETH
Governance Exploit risks
risks of decentralized governance (through coin voting) pushing poor configurations that leads to potential exploits that damage the protocols
quantifiable risks
BEAN exploit on protocol through token voting/ flash loan attacks
De-peg risks
risks of stable coins trading below $1 peg, based on historical open market price
quantifiable risks
USDT momentarily loses dollar peg

LUSD peg is frequently at above a dollar
Slippage and price impact risks
risks of stable coins price being impacted from a large sell swap or receiving a price that is worsen that what is quoted

happens at the time of the trade
quantifiable risks
a swap of >200K USD on a Uniswap incurring >5% slippage
Smart contract risks
risks of faulty smart contracts from logic failures, code complexity to external integrations

this includes risks from upgrading smart contracts, and frequency of contract upgrades
quantifiable risks
Rari smart contract exploit

Compound staking rewards upgrades

Risk dimension	Description	Category	Example
US Regulatory Enforcement risks	risks of regulatory enforcement and state level coercion	fundamental risks	OFAC sanctions push projects to preemptively ban Tornado cash users
Censorship risks	risks of being censored by issuers ie. address blacklisted	quantifiable risks	Tether black list addresses from a USDT transfer
Liquidity risks	risks of assets having insufficient liquidity in secondary market, leading to inability to buy/sell against the asset. including in this dimension is redemption the ability to redeem stable coin against underlying collateral velocity or transfer volume factors into a liquidity premium instead of simply idle LP farm	quantifiable risks	stETH holder inability to redeem LSD against underlying ETH
Governance Exploit risks	risks of decentralized governance (through coin voting) pushing poor configurations that leads to potential exploits that damage the protocols	quantifiable risks	BEAN exploit on protocol through token voting/ flash loan attacks
De-peg risks	risks of stable coins trading below $1 peg, based on historical open market price	quantifiable risks	USDT momentarily loses dollar peg LUSD peg is frequently at above a dollar
Slippage and price impact risks	risks of stable coins price being impacted from a large sell swap or receiving a price that is worsen that what is quoted happens at the time of the trade	quantifiable risks	a swap of >200K USD on a Uniswap incurring >5% slippage
Smart contract risks	risks of faulty smart contracts from logic failures, code complexity to external integrations this includes risks from upgrading smart contracts, and frequency of contract upgrades	quantifiable risks	Rari smart contract exploit Compound staking rewards upgrades

Last modified 6mo ago