Risks per Currency

This section showcases the results of the risk assessment methodology and analyses the results for each of the currencies considered.

Currency Risk Map

The risk assessment methodology applied to our historical data computes the following risk ratings per currency.

Currency Risk Map

Risk Analysis per Currency

DAI

DAI is the first decentralized stablecoin built on the Ethereum network. It is minted by creating a Collateralized Debt Position (CDP) and staking a certain amount of ETH. Every CDP must be overcollateralized by at least 150% of the minted DAI. Below this threshold, the CDP gets liquidated.

DAI Smart contract Risk: B-

SAI is active since December 2017 and has remained fully operational. In November 2019 the contract has evolved for DAI to hold a basket of currencies instead of just Ethereum. Given its wide use in the DeFi space, the contract already holds nearly 2 million transactions which mitigates the risk rising from its young age.

DAI Counterparty Risk: C

DAI is the stablecoin of Maker DAO which has been functioning efficiently since inception. Anyone can mint DAI by opening a CPD. The Maker team also has some control over the minting. Following the Black Thursday crash of March 2020, there was some deficit in the backing of DAI which required the minting of additional MKR. Additionally, there are some concerns related to the centralization of the price feed, with oracles failing to keep the prices up to date during the said Black Thursday.

DAI Market Risk: B

DAI has $85 million market capitalisation with over $15 million of average daily volume spread across the top exchanges. It has been robust throughout its whole life, sustaining multiple ETH price drops. The volatility is low, yet the DAI peg has suffered during the Black Thursday due to increased demand for liquidations. Additional collaterals are since been added, among which USDC to stabilise the price.

USDC

USDC is primarily promoted by Coinbase and supported by the CENTRE consortium. Together with DAI, it has been the most used stablecoin in the DeFi ecosystem following a strong push from Coinbase who provides liquidity to projects.

USDC Smart contract Risk: B+

USDC has only been active since September 2018 with already nearly two million transactions.

USDC Counterparty Risk: B-

As it’s backed by real US dollars, USDC is centralized. The technology to mint new USDC and hold the backed USD is based on a legal framework. It is currently maintained by the CENTRE consortium which is a trusted entity in the ecosystem. Furthermore, USDC is the first regulated cryptocurrency bringing a lot of legitimacy to the space. Still, the infrastructure is based on the Ethereum blockchain where regulators have little power.

USDC Market Risk: A-

There is a high trading volume for USDC reaching over $800 million a day, with many pairs in multiple exchanges and a high market capitalisation. The token is used in multiple DeFi platforms both as collateral and principal. USDC is a stablecoin backed by real USD leading to low volatility.

TUSD

TrueUSD is supported by the company TrustToken, which is periodically audited by 3rd parties. Right now, TrueUSD’s usage and diffusion in the DeFi space is limited. Still it is supported by multiple centralized crypto lending operators.

TUSD Smart contract Risk: B

TUSD is active since May 2018 with this contract deployed in January 2019 holding over half a million transactions.

TUSD Counterparty Risk: C

As it’s backed by real US dollars, TUSD is centralized. The technology to mint new TUSD against USD is open source and you can check in real time the proof of funds in an escrow bank account.

TUSD Market Risk: B+

TUSD is widely available in different exchanges with a high volume and market capitalization. It is a low volatility stablecoin backed by real USD.

USDT

Tether is the oldest USD backed stablecoin. It initially started as an independent currency built on the Omni blockchain, and progressively moved on the Ethereum blockchain, presumably to take advantage of the DeFi ecosystem.

USDT Smart contract Risk: A-

USDT is the first stablecoin in operation since November 2014 and on this Ethereum contract since November 2017. With nearly 20 million transactions, USDT is one of the most used coins.

USDT Counterparty Risk: D cannot be used as collateral

Tether is centralized, fully controlled by Tether Limited, which is in turn controlled by BitFinex. The procedure to redeem the underlying asset in exchange for USDT is also unclear.

There are multiple legal investigations on these two companies regarding USDT. Specifically, there has been accusation of illegally manipulating the price of Bitcoin using non backed USDT, as well as legal claims on the usage of the collateralized funds by both Tether Limited and BitFinex.

However, since the beginning of 2020, the company has tried to gain back some trust, disclosing an audit and appropriate collateralization.

USDT Market Risk: A+

USDT is widely available in different exchanges and is the stablecoin with the highest volume. The value of USDT is stable around 1 dollar as it is backed by USD.

SUSD

Synthetix is a decentralized synthetic asset platform on Ethereum that provides onchain exposure to real world assets. sUSD is the dollars pegged synthetic asset backed by the network token.

sUSD Smart contract Risk: C+

sUSD was launched in June 2018 and has struggled to gain market share in the competitive stablecoin market with only a small number of transactions.

sUSD Counterparty Risk: D+ cannot be used as collateral

Despite being built on a decentralized infrastructure, some security reports have highlighted undocumented functions in the Synthetix contracts that might present a security risk. These functions could allegedly give permission to the project maintainers to manipulate or withdraw the liquidity available within the Synthetix contracts, as well as manipulate user data (balances, debts).

sUSD Market Risk: C-

Right now, there isn’t much liquidity available for sUSD on the market and the usage within the DeFi workspace is pretty limited with a small market capitalisation. As a result, sUSD has suffered a manipulation on the Kyber exchange resulting in its price rising up to 2.45$. Most of the time though, its value is stable around 1 dollar backed by the Synthetix Network Token.

BUSD

BUSD is one of the latest stablecoins launched by a partnership between Paxos, expert in stable coins, and Binance, one of the biggest exchanges and a major player in the industry. Aave is the first integration of BUSD in a DeFi money market, bridging our ecosystem with CeFi.

BUSD Smart contract Risk: D+ cannot be used as collateral

The BUSD contract launched in September 2019 has a small number of transactions, many transactions are likely to happen off-chain on the Binance exchange. However, Aave has performed a thorough verification of the smart contract that appears identical to the PAX smart contract launched in September 2018 with nearly a million transactions. Still, since the smart contract is so recent, BUSD cannot be used as collateral at present time.

BUSD Counterparty Risk: C+

BUSD is backed by real USD so it is centralized. The administrative features are explicit with Paxos as custodian and issuer. A monthly audit attests to the consistency of the USD bank reserves versus the on-chain supply of USD. Finally, BUSD is compliant and has been approved by the New York State Department of Financial Services (NYDFS).

BUSD Market Risk: B+

The market capitalisation is quite high with a fast growth these last few months. The trading volume for BUSD has picked up with over $100 million a day, mostly but not limited to Binance. As a stablecoin backed by USD, the volatility is very low.

SNX

Synthetix is a decentralized synthetic asset platform that provides trackers of multiple currencies including USD, EUR, GBP, as well as cryptocurrencies like BTC, ETH and BNB which are backed by Synthetix Network Tokens SNX locked in the respective contract.

SNX Smart contract Risk: C+

SNX was first launched in March 2018 quickly building a community but has still to reach a significant number of transactions.

SNX Counterparty Risk: D+ cannot be used as collateral

Despite being built on a decentralized infrastructure, some security reports have highlighted undocumented functions in the Synthetix contracts that might present a security risk. These functions could allegedly give permission to the project maintainers to manipulate or withdraw the liquidity available within the Synthetix contracts, as well as manipulate user data (balances, debts).

SNX Market Risk: C+

SNX price has shown strong growth in the last year. In parallel, the liquidity on exchanges has remained small. Our underlying metrics are based on centralized exchanges, yet there seems to be significant volume coming from decentralized exchanges such as the Synthetix native exchange.

REP

Augur is a decentralized prediction market platform built on Ethereum; it is one of the first building blocks of DeFi.

REP Smart contract Risk: C+

Augur is one of the oldest and most trusted projects in the space, starting in March 2014. The current contract deployed in July 2018 with only 300 thousand transactions.

REP Counterparty Risk: B

The project is completely decentralized with nearly 20,000 holders. It can continue to function even if the Augur team ceases to exist.

REP Market Risk: B-

It is traded on many exchanges and has a rather high volume. It is a popular token with a big market capitalisation and one of the first tokens to be included in DeFi protocols. The price of Augur has been rather volatile throughout the last year with a big spike in early 2020.

ZRX

0x allows fast and efficient currencies exchanges on Ethereum, in a secure and non-custodial manner through a system of relayers. The token, ZRX, is mostly used for governance and as a utility token throughout the platform.

ZRX Smart contract Risk: B+

0x is one of the oldest projects on Ethereum, helping exchange ERC tokens since October 2016. The latest contract deployed in August 2017 now holds over a million transactions.

ZRX Counterparty Risk: B+

The project is completely decentralized and can continue to function even if the 0x team ceases to exist. It has a strong community with over 100,000 holders.

ZRX Market Risk: B-

It is traded on many exchanges and has a decent volume and rather low volatility.

BAT

Basic Attention Token is an Ethereum based token that was created alongside its native platform, the Brave browser, with more than 5 million monthly users. BAT’s main use case is to reward publishers and content creators through tips on the browser, or as payment currency for the Brave advertisement system.

BAT Smart contract Risk: B+

BAT is in operations since 2017, the contract deployed in May holds nearly 2 million transactions.

BAT Counterparty Risk: B+

The platform is decentralized and the main product, Brave, is open source. It is based on a non-crypto native product, having managed to build a strong community with over 250,000 holders.

BAT Market Risk: B-

BAT is one of the established projects on Ethereum and beyond the digital currency space, available on many exchanges with high liquidity. The token price has shown some volatility in the last year.

WBTC

Wrapped Bitcoin is an attempt to bring Bitcoin to the Ethereum blockchain, by tokenizing real bitcoin. The project responds to a real market demand since Bitcoin is the first and most successful cryptocurrency. The project was born in 2018 by the joint efforts of major players in the space: Kyber Network, the Ren Project and BitGo.

WBTC Smart contract Risk: C+

WBTC has only been available since January 2019 having yet to gain significant traction with just over 100 thousand transactions and $6.5 million market capitalisation.

WBTC Counterparty Risk: C

WBTC is centralized with bitcoins custodially locked on the Bitcoin blockchain. The custody is performed by BitGo, a leader in blockchain custodian technologies.

WBTC Market Risk: C-

WBTC is not easily available, accessible on some DeFi platforms with a low volume. Redemption of WBTC for the underlying asset requires KYC and a merchant license by the WBTC consortium, and the liquidity on the market is relatively low. WBTC has suffered market manipulation on Kyber exchange leading to a 60% drop in price. Still WBTC tracks the price of BTC which is not too volatile compared to other currencies considered.

Since WBTC is backed by the first and most successful digital currency BTC we consider some of these risks mitigated by BTC’s wider market which we use as market feed for the protocol’s oracle.

MKR

MKR is the utility and governance token used in the MakerDAO platform responsible for the emission of DAI. MKR is mainly used to repay the stability fee, and for governance purpose. MKR’s monetary policy is based on a deflationary economy.

MRK Smart contract Risk: B

MKR was launched in 2016, before DAI, with this contract deployed in September 2017. It is widely available on exchanges and increasingly popular in DeFi platforms accounting for nearly 700 thousand transactions.

MKR Counterparty Risk: C

The MKR token is part of the MakerDAO ecosystem and is decentralized and non-custodial. The token is used for governance votes based on the concept of anchor votes led by some whales. Some votes have even been taken over by whales with single addresses representing up to 94% of the voting power. On the Black Thursday crash of March 2020, the Maker system struggled to cope with price crashes and market congestion, leading to a multimillion deficit in the system. The Foundation, supported by governance funded the deficit by auctioning new MKR tokens. This auction has not lead to the reimbursement of vault holders who lost all their collateral, some are now attacking the foundation with a class action.

MKR Market Risk: C+

MKR is one of the most successful Ethereum projects, supported by a big community with a big market capitalisation. It is available on most exchanges, yet the volume is not as big as you might expect. Additionally, the token price has been quite volatile, and more so recently as MKR vulnerabilities were exposed.

ChainLink is a protocol that aims to provide a base infrastructure for decentralized oracles. The goal is to allow contracts to fetch data from the real world in a decentralized, tamper-proof manner. The use cases of LINK include payments of oracle fees and staking as a security mechanism to prevent tamper and fraud.

LINK Smart contract Risk: B+

ChainLink has been active since 2017 deploying this smart contract in September. Its adoption has boomed in 2019, driven by the reliability of its oracles, with now over 2.5 million transactions.

LINK Counterparty Risk: B+

ChainLink is non-custodial and opensource, with over 100,000 holders, hence presents low centralization risk.

LINK Market Risk: B-

LINK has become increasingly relevant becoming one of the most successful Ethereum projects. It is widely available on exchanges and increasingly popular on DeFi platforms. The trading volume is very high. LINK’s price has seen a sharp increase in 2019 and we can anticipate that the volatility will continue.

KNC

Kyber is an onchain liquidity protocol that can be used for a variety of inter-token use cases such as payments, portfolio rebalancing, currency exchanges. KNC, is mostly used for referrals and fee management. It implements a deflationary economy. Kyber is building protocol governance on top of the infrastructure based on the KNC token.

KNC Smart contract Risk: B

Kyber is active and traded since September 2017. It has over 750,000 transactions.

KNC Counterparty Risk: B

Kyber is a decentralized protocol, non-custodial and open source with over 50,000 holders.

KNC Market Risk: C+

Kyber’s decentralized exchange provides an important number of KNC token pairs with good volume (even on centralized exchanges) and decent market capitalisation. KNC’s price has been rather volatile since its inception.

MANA

Decentraland is a virtual world on the Ethereum blockchain. Users are able to purchase land with the project’s token MANA, and the ledger is kept on the Ethereum blockchain, which indisputably demonstrates the ownership of the land. The virtual world just opened in February 2020.

MANA Smart contract Risk: B

MANA has been active since June 2017. It is a well-known currency, with nearly half a million transactions.

MANA Counterparty Risk: B-

Decentraland is decentralized and completely open source, with over 35,000 holders. Some part of the protocol, such as the price oracle, hold some centralization risk.

MANA Market Risk: C

The price of MANA has been rather volatile in the last year as the full project was deployed. It is a well-known currency, with a decent level of liquidity on the market, listed in multiple high-profile exchanges.

LEND

Aave’s token LEND is the native currency in the network.

LEND Smart contract Risk: B

The LEND token was launched in September 2017 to support ETHLend’s peer-to-peer loans and has been in existence ever since. At the moment it holds over 350 thousand transactions.

LEND Counterparty Risk: B+

Aave Protocol holds decentralization as a core value, being fully open source. The current governance process is based on voting of the team members which will progressively evolve into a full DAO governed by over 150,000 LEND holders.

LEND Market Risk: C

For the last year, Aave has been focused on refreshing business operations. The protocol launched on mainnet at the beginning of 2020, successfully bringing more volume. This new platform has also affected the price with some volatility.

ETH

Aave is developed on the Ethereum blockchain, making it fully dependent on Ethereum’s reliability. Aave and all the currencies presented are part of the Ethereum ecosystem; ETH is therefore the least risky currency considered.

ETH Smart contract Risk: A+

Ethereum is among the oldest cryptocurrencies ranking number 2 in terms of market capitalization. It has a large and committed community as demonstrated by the 673 million transactions conducted.

ETH Counterparty Risk: A

Ethereum is the most diverse ecosystem of digital currencies with nearly 100 million holders. There are many organizations that are dedicated to pushing the ecosystem further and decisions are community based.

ETH Market Risk: A+

Ethereum has among the highest market capitalisation and trading volumes of digital currencies. Ethereum’s price has been rather volatile in 2019, and prices of tokens on its ecosystem tend to be correlated (except stablecoins).

Risk Analysis for Currencies of Secondary Markets

SETH

Synthetix is a decentralized synthetic asset platform on Ethereum that provides onchain exposure to real world assets. sETH is the ETH pegged synthetic asset backed by the network token.

sETH Smart contract Risk: D+

sETH was launched in September 2019 and has only a small number of transactions.

sETH Counterparty Risk: D+

Despite being built on a decentralized infrastructure, some security reports have highlighted undocumented functions in the Synthetix contracts that might present a security risk. These functions could allegedly give permission to the project maintainers to manipulate or withdraw the liquidity available within the Synthetix contracts, as well as manipulate user data (balances, debts).

sETH Market Risk: D+

Right now, there isn’t much any liquidity available for sETH on centralized markets. Most of its use comes from the Synthetix exchange, with pretty limited DeFi usage. The market capitalisation also remains small. As a derivative of ETH, sETH holds the same volatility, being rather volatile in the last year.