Covered risks
Products > Yield Tranches > Covered risks
Last updated
Products > Yield Tranches > Covered risks
Last updated
Each Yield Tranche is based on one or more yield sources, which are exposed to a set of dependencies and risks. Additionally, every YT is subject to underlying strategy and Idle YTs infrastructure risks.
Given the nature of the two classes of tranches, which differ in terms of risks and gains opportunities, it is possible to explain their behaviour through two scenarios: a Yield case and a Loss case. See Yield and Loss scenarios in the Overview section.
In general, Senior YTs holders always benefit from the payout priority (first in line to redeem their funds) after events that can cause a decrease in:
the exchange rate between YTs-managed yield-bearing tokens' and the underlying asset
the exchange rate between YTs tokens and the underlying asset
Examples:
A downstream lending market suffers a loss of funds and the price of the yield-bearing tokens deployed by YTs decreases. The affected Junior and Senior YTs are automatically paused.
The YTs’ main contract, idleCDO
, suffers a loss of funds, letting the attacker redeem deposited yield-bearing tokens. The price of the YT token decreases. The affected Junior and Senior YTs are manually paused.
YTs interact with a range of DeFi primitives, each with its own specific risks. Every primitive, though, share a number of common risks:
Risk | Description | Outcome | Coverage |
---|---|---|---|
A list of specific risks affecting Automated Market Makers, Lending protocols, Liquid Staking protocols, Leveraged strategies and Options strategies follows.
Risk | Description | Outcome | Coverage |
---|---|---|---|
Lending protocols are mainly classified into two categories based on the type of loans they offer: overcollateralized and undercollateralized.
NB - YTs do not cover Senior LPs funds in case of events leading to a de-peg.
Risk | Description | Outcome | Coverage |
---|---|---|---|
Risk | Description | Outcome | Coverage |
---|---|---|---|
Risk | Description | Outcome | Coverage |
---|---|---|---|
Risk | Description | Outcome | Coverage |
---|---|---|---|
Risk | Description | Outcome | Coverage |
---|---|---|---|
Smart contract
Exploit of a bug in downstream yield protocols' code
Partial loss of funds
Yes
Governance
Adverse changes to protocol parameter
Partial loss of funds
Yes
Asset de-peg
The peg of a token against another asset is lost
Reduced value against other units of account
No
Impermanent loss
Change of the token price in the underlying pool
Reduced fiat ($) value
No
Incorrect price feed
Oracle manipulation or failure
Bad debt creation
Yes
Unappropiate collateral factors
Generation of untenable positions
Bad debt creation
Yes
Wrong liquidation
Liquidation does not work as expected
Bad debt creation
Yes
Borrower default
Borrower is not able to pay back the loan and is insolvent
Partial loss of funds
Yes
Validator key management
Loss of multisig keys holding staked ETH
Partial loss of funds
Yes
Slashing
Staking penalties for validators' network
Partial loss of funds
Yes
Liquidation
Liquidation of the position at loss
Partial loss of funds
Yes
Financial
The strategy generates negative returns
Partial loss of funds
Yes