StraitsX Earn deploys user funds to DeFi protocols in order to generate yield and offer payouts to users. To better understand how StraitsX Earn mitigates potential risks for users, let’s take a closer look at the flow of user’s funds:
- User sends XSGD to StraitsX Earn, which are then held in the StraitsX Wallet
- StraitsX Earn then transfers user’s XSGD from StraitsX wallet to an on-chain wallet
- StraitsX Earn swaps some XSGD to USDC on-chain, thus holding XSGD and USDC in the on-chain wallet
- StraitsX Earn deploys XSGD and USDC from the on-chain wallet to DeFi protocols. DeFi protocols now hold custody of XSGD and USDC.
Are user funds safe when held by StraitsX Earn?
Funds held by StraitsX Earn are secured by the following measures:
- ISO 27001 certified: The StraitsX platform is defended by the same, stringent security processes adopted by banks and financial institutions around the world.
- Cold and hot wallet storage of XSGD: In line with industry best practices, XSGD held by StraitsX is mostly stored in “cold” storage on offline hardware wallets and safeguarded in a secure location, and a small remaining amount held in “hot” wallets with a digital asset custodian.
- Industry leading security: We use an institutional grade on-chain custody service offered by Copper, which is ISO 27001 certified and covered by digital asset insurance.
- Multi-signature transactions: Each on-chain transaction carried out by StraitsX Earn requires sign-off from multiple signatories for enhanced security.
Are user funds safe when deployed to DeFi protocols?
To generate yield, user funds are deployed into decentralised finance (DeFi protocols), at which point they leave StraitsX Earn’s custody.
DeFi protocols run on smart contracts, which are vulnerable to technical risks such as hacks and cyber-attacks, similar to any other technology platforms. To reduce these risks upfront, StraitsX Earn takes a three-pronged approach:
1. Selection of protocols
StraitsX Earn has an internal risk assessment framework in picking Defi protocols to deploy funds to. This framework takes into consideration factors such as its quantity and quality of technical audits, its track record (such as how long it has been around and if it has a history of smart contract exploits), and the size of its TVL or transaction volume.
Based on this framework, StraitsX Earn has chosen to deploy majority of user funds into an audited liquidity pool protocol such as Uniswap.
2. Monitoring of protocols
StraitsX Earn constantly monitors industry news as well as on-chain protocol activity. For example, to detect any large decreases in the value of underlying assets or suspicious changes in liquidity pools transactional volumes.. Depending on our assessment of the situation, we may re-evaluate our positions and may withdraw part or even all our liquidity from the protocol to keep user funds safe.
Additionally, StraitsX Earn is also exploring DeFi insurance and/or smart contract coverage to provide additional protection against smart contract risks.
Are user funds exposed to counterparty risks of third parties?
StraitsX Earn does not engage in lending, trading, or leveraged positions. As such, user funds are not held by a third party borrower or institution, and users are not exposed to counterparty risks from a third party.
Furthermore, StraitsX Earn deploys funds into liquidity pool protocols, which generate yield via transaction fees paid on transaction volume. Such a model does not take on debt/loans nor incur trading losses, which are the main factors leading to credit or counterparty risks.
In summary, this is how StraitsX Earn mitigates various forms of potential risks:
- Technical risks (e.g. smart contract risks, hacks) - Funds are only deployed in DeFi protocols with extensive technical audits and a strong track record. Undeployed funds are held in cold wallets and with an institutional grade digital asset custodian.
- Market risks - StraitsX Earn is only powered by fully fiat-backed stablecoins, which are price stable, and not exposed to the negative price swings that non-stablecoin crypto assets may experience.
- Counterparty risks - StraitsX Earn does not engage in lending, trading or leverage, so user funds are never exposed to third-party risks.
- DeFi/Fiat Liquidity risks - User funds are never deployed to centralised lending platforms which may halt withdrawals. Decentralised protocols allow us direct access to withdraw funds any time to repay users. StraitsX Earn’s use of fully fiat-backed stablecoins also allow user funds to be easily redeemed back to fiat due to the 1:1 fiat backing in reserve.
Submit your interest in StraitsX Earn here today.
*This article has been revised as of 14 November 2022.