Smart contract failures
The finance protocols featured on Stablegains are digital and decentralized (not operated by a single entity with human participants like a centralized bank). Instead, they are governed by smart contracts - software algorithms that direct the flow of funds and ensure all transactions are correctly carried out.
As with all financial and non-financial software, there is a risk of bugs in the computer code that would result in undesired behavior or the existence of loopholes that a bad actor could exploit.
We mitigate this by working with protocols that live up to our criteria: They have to have at least $500 million under management, and all of their code has to have gone through an external audit with a leading blockchain code auditor. Additionally, we work to offer users the ability to deposit across a number of protocols to limit the exposure to a potential issue on a single protocol.
Finally, there are several additional smart contract insurance solutions in development; we will evaluate the viability of each when available.
Malicious protocol developers
Across crypto projects, there have been cases of malicious crypto developers that developed a tool, attracted capital from investors, and then abandoned the project and ran away with the capital (colloquially known as a rug pull). To limit this risk, we only work with protocols where:
- Code is audited (one of the main objectives of audits it to verify that rug pulls are not possible)
- Ownership expressed in their governance token is distributed among at least 100 distinct entities
- Any protocol changes must pass through a transparent public vote before being implemented
- They have successfully reached a certain size ($500 million market cap from 100+ participants).