Risk

Beyond the desired financial risks, traders and liquidity providers should be aware of potential platform and systemic risks when using Domination Finance.

Terminology

Open long/short interest is the total size of all long/short positions ($\sum_{pos}{\text{margin} \times \text{leverage}}$). Open interest can be used to calculate total PnL due to a certain price shift. For instance, if long open interest is 100,000 USDC and price increases 10%, traders profit by 10,000 USDC.

Exposure is $(\text{long open interest} - \text{short open interest})$. If exposure is 0, PnL will be 0 no matter which way prices move. Reducing exposure reduces LP risk.

Bank Runs

If utilization increases, perhaps because traders had a lucky streak or because of a large withdrawal, depositors might worry that the vault's obligations to traders will exceed its balances. If worried depositors withdrew their collateral before this happens, they would further increase utilization and cause a self-fulfilling prophecy. To reduce this tendency, and buy time for Domination Finance to deploy additional funds to stabilize the vault in case a run begins, Domination Finance releases withdrawals over time when the vault is unhealthy.

Contract Risk

Domination Finance is powered by smart contracts on Arbitrum. Our contracts interact with USDC and wETH, rely on a Gnosis Safe for governance, and may integrate with third-party yield aggregators and OrderBook implementations in the future. A flaw in any of these smart contracts could lead to loss of funds. All of Domination Finance's contracts are professionally audited by a third party before production deployment.

Centralization Risk

Right now, the team runs the only order and liquidator bots, and runs a centralized oracle. A failure in these critical systems could lead to incorrect prices, orders that fail to execute, or positions that fail to liquidate. This could lead to losses for traders, liquidity providers, or both.

Although anyone can interact with the contracts on Etherscan, a failure of Domination Finance's website could make it difficult for traders and liquidity providers to interact with the platform, and a hack of the website could deceive traders about current prices or prompt them to execute malicious transactions.

We will be decentralizing these core functions for further resiliency.

Systemic/Market Risk

Domination Finance is a part of the larger ecosystem of decentralized finance. Failures of related systems can affect your funds, and external events like new cryptocurrency legislation can have unexpected effects beyond their direct impact on price.

Domination Finance provides a USDC vault. USDC is guaranteed by the Centre Consortium to be exchangeable 1:1 for US dollars. However, if something were to happen to Centre Consortium (Coinbase and Circle) or the legal status of stablecoins, your funds could be at risk.

Domination Finance provides a wETH vault. Events affecting the price of Ether will affect the value of positions and deposits in this vault, even if dominance does not change.