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:
Funds held by StraitsX Earn are secured by the following measures:
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:
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 user funds into two audited liquidity pool protocols: Uniswap and DFX.
Based on the internal above risk assessment framework and the evaluation of each individual protocol, StraitsX Earn also determines what percentage of funds to allocate to each protocol. At the time of writing, we allocate 90% or more of our deployed funds to Uniswap and the rest to DFX, taking into account the longer track record of Uniswap.
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.
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.
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