An overview of possible risks of using GYD

Gyro Dollars (GYD) is launched in a mainnet beta stage. While it is launched with a functional decentralized governance, it is intended to be observed over a 3-6 month period in a setting with additional centralized guard rails before full decentralization occurs.

Upgradeability of GYD contracts

While the contracts have been audited several times and a prototype version (p-GYD) has been in production for 10 months, the risk of code bugs cannot be fully mitigated. As such, it is important that both the community and the development team at FTL Labs, who was mandated to deliver v1 of the protocol, are able to quickly address smart contract issues that may be found. For this reason, a centralized control multisig will temporarily retain control of the system parameters and protocol update and design decisions in parallel with decentralized governance. This multisig is led by the Gyroscope Foundation, a foundation company associated with Gyroscope governance.

Following the full decentralization, this centralized control vector will be removed, and further updates to Gyroscope contracts will have to be enacted by Gyroscope governance. This is fundamentally important to launching Gyroscope as a decentralized protocol.

Risks of using GYD

Using GYD also comes with certain risks, including the following:

  • Smart contract risk: As with any smart contract system, there is an inherent risk that an exploit or bug puts committed assets at risk. This risk can be reduced by conducting code audits and testing, but it cannot be fully excluded.

  • Risks of reserve assets: The Gyroscope system is backed by reserve assets, which may include other stablecoins, LP shares in AMM pools, and other tokens. Each of these assets has its own risks, and there is no guarantee that Gyroscope reserve assets always have enough value to fully back the system. More information on stablecoin risks is described, for example, in this paper. More information on LP risks is described in the CLP docs. While these asset risks have been studied (like in the provided links), cryptocurrencies remains a new space in which risks may not be fully understood yet. The Gyroscope reserve may in principle incorporate volatile assets, such as WETH, as future reserve assets. Should this happen, the system may be expected to become under-reserved at times due to the volatility of such assets. Stable assets also contain risks, and a depeg of such an asset could also cause Gyroscope to become under-reserved.

  • Price oracle risks: The Gyroscope system relies on a system of price oracles to import asset pricing information from off-chain markets and to read pricing information from on-chain markets. At times, these oracles may provide wrong information or may be manipulated, which may lead to system losses on reserve assets. Oracle risks are described further, for example, in this paper and in the oracle system specification. While the Gyroscope design attempts to mitigate oracle risks, some residual risk always remains.

  • Risks of using the DSM: The DSM defines the system’s monetary policy of how reserve assets are used toward maintaining a stablecoin peg. The DSM is designed to balance maintaining a peg with preserving reserve assets in the scenario that reserve assets experience shocks and the system becomes under-reserved. By the design of the DSM (and transparent on-chain), there is no guarantee that users are able to redeem GYD from the system at a value near the peg price at all times. In addition to drawdown risk due to volatility of reserve assets, the DSM may lead to additional drawdown of reserve value. The DSM monetary policy is designed to allow some level of redemptions near the stablecoin peg while the system is under-reserved, which would draw down the overall reserve ratio available for later redemption. This additional drawdown depends on the level of inflows and outflows that the system experiences while under-reserved and on the calibration of the DSM. The DSM is designed to be bounded by a DSM parameter, as described in the DSM technical paper.

  • Bootstrapping pool risk: GYD is launched with a ‘bootstrapping pool’, which allows a pre-set amount of GYD to be minted in a simplified manner against a specific reserve asset. The bootstrapping pool structure bypasses the normal Gyroscope minting and redemption structure, including the extra minting and redemption safety checks and reserve diversification mechanisms. Should the single reserve asset held in the bootstrapping pool depeg, it would have an outsized effect on the Gyroscope system while the bootstrapping pool is large in comparison to the rest of the system.

  • Upgradeability risk: Many contracts forming the GYD stablecoin system are upgradeable, meaning that the smart contract code may change over time. While it is intended that smart contract upgrades for GYD would fix any code bugs that may materialize, upgrades may also introduce new vulnerabilities and have their own smart contract risk.

  • Blockchain infrastructure risk: The GYD stablecoin contracts are deployed on the Ethereum blockchain, and any interaction with the smart contracts inherits the risks of the Ethereum network.

  • UI and blockchain interaction risks: When a user interacts with the Gyroscope system through the Gyroscope web UI, they are exposed to technical risks. While the Gyroscope UI has been carefully reviewed to avoid bugs and vulnerabilities, these cannot be completely excluded. A UI bug may lead to an incorrect transaction being generated, or the UI may become unavailable. A user’s own IT setups (e.g., web browser, wallet software) may further contain bugs and vulnerabilities.

Any of the above risks can lead to a partial or complete loss of the user’s assets.

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