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Risks and mitigation
Bond + Options Vaults
Cega vault strategies are sophisticated investment products that carry risks and are not suitable for investors who do not comprehend the product or are risk averse.
(1) Credit risk— if a market maker (MM) defaults, they may not pay depositors some or all of the owed yield and owed capital partially borrowed from user deposits. Cega will only trade Bond + Options positions with market makers that have verified balance sheets and acute risk management/diversification. Cega is also a leader in risk management practices including signing ISDA legal agreements with MMs, choosing accredited MMs who pass KYC and who have a history of credit worthiness, and using Credora to actively monitor counterparty balance sheets.
(2) Principal at risk— FCN investors are taking a bullish perspective towards crypto markets. However, if markets experience a significant downturn (eg. 50% decline) that exceeds the knock-in barriers, investors may lose some portion of their initial investment.
(3) Smart contract risk— there is smart contract risk associated with depositing funds on-chain. To ensure security, Cega enlisted top firms to audit its code and has an ongoing retainer for new features. The Ethereum smart contract was double audited by Ottersec and Zellic. The Solana smart contract was audited by Ottersec and saw security consultation by Zellic during the development process.