Risks and mitigation
Pure Options Vaults
Last updated
Pure Options Vaults
Last updated
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.
Risks include:
(1) Credit risk— if a market maker (MM) defaults, they may not pay the yield owed to depositors for the 27 day trade. However, there is no credit risk for the depositor’s invested capital because it is 100% collateralized on-chain and not engaged in lending. Cega has strong risk management practices including signing ISDA legal agreements with MMs, and choosing accredited MMs who pass KYC and who have a history of credit worthiness.
(2) Principal at risk— Pure Options 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.