Risk Factors

msUSD is not a stablecoin but a yield-generating rebasing token with a soft dollar peg, creating a fundamentally different risk profile than USDC or USDT.

Key Distinctions

Traditional stablecoins maintain their peg through fiat reserves. In contrast, msUSD's value derives from sophisticated delta-neutral trading strategies, with redemption value dependent on the current coverage ratio.

Primary Risk Categories

Options Strategy Risks

• Volatility Risk: Mispricing between realized and implied volatility can create losses - unexpected volatility spikes can impact short positions, while lower-than-predicted volatility can affect long positions

• Delta Hedging Costs: Extreme market conditions may increase the costs of maintaining delta neutrality

• Liquidity Risk: Options market depth limitations could impact strategy execution during high volatility periods

• Model Risk: Machine learning volatility prediction models may experience periods of reduced forecasting accuracy

• Options Market Disruptions: Temporary dislocations in options pricing may occur during extreme market events

Market Structure Risks

• USDT Depegging: Could impact positions or collateral denominated in USDT

• Basis Risk: Potential for spot and derivatives markets to diverge unexpectedly

• Term Structure Shifts: Rapid changes in volatility term structure could impact options positions

Custodial & Exchange

• Operational Dependence: Reliance on institutional custodians and options exchanges

• Counterparty Risk: Mitigated through exchange selection and position diversification

• Planned Diversification: Strategy implementation across multiple venues to minimize venue-specific risks

Technical & Operational

• Smart Contract Vulnerabilities: Potential risks in contract implementation

• Cross-Chain Risks: Issues that may occur during bridging operations

Execution Systems:

Temporary failures in automated hedging or execution systems