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 dimensionDescriptionCategoryExample

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

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