Assessing and Mitigating Risks in Stablecoin Protocols

Transcript

so hey everyone so my name is picorice I am I co-founded angle Labs which is the dev company behind angle the angle protocol and so we're a stablecoin insurer and I'm gonna give you a brief overview of all the risks you expose yourself when you're when you're using stable coins and how you can do better in this regard so firstly let's discuss a bit uh the stats so the facts are that there's a huge industry around smart contract security we're doing formal verification we're doing a whole lot of a lot of techniques we're doing fuzzing we're doing tons of stuff and there's tons of companies in this space but there's very little on the economical design of of stable coins

of blending markets and so on and for example the the total value hacks according to Define mice 8 billion but the fact is most end users lost money to stable coins to USD to the other ones that failed before and so the value lost two stable coins has been very high so 18 billion just for UST and every few months we have a trust crisis regarding usdt regarding usdc regarding busd currently binance table coins and true USD as well so there's really a major a major security point in being able to explain the risk to the end

users and being able to to to have some let's say a rating Agency for these centralized stable coins so to get to to to the the first thing the first very good point about centralized stable coins is that most of the times you have like reserve proofs and the reserves of the state gun is being audited by an external by an independent entity who's checking that they have the cash in bank that they have the reserve assets and that is this this entity is issuing a proof of this so that's a good thing but the bad thing is we frequently don't know where these stable coins will decentralized on TTR Banks like we still don't know which

bank is back in usdt and I guess it's some low tier bank right it's not it's not the main one and it's not the ones you would use with your own savings rate so that's that's an issue and we also very frequently don't know how they are monitoring this on chain what I mean so some are the closing they are using MPC but we've just learned that you cannot trust this uh witnessing the The multi-chain Arc some are using uh multisig but we don't know designers so here is a brief overview of the the state of the Euro stablecon market and you can see that in most of the case it's either unknown signers be an emergency either external owned accounts but with unlimited allowances

either just NPCs but it's closed on the documentation but we have no formal proof of this so there's an issue here there's an issue also in being regulated and being compliant with regulations any stable coins can be shut down by the governments it is regulated into so that's that's a regulatory risk you expose yourself as well when you when you AP when you ape into a centralized stablecoin and there is of course fees and the the the risk of the underlying assets so you have the proof that there are some assets but most of the time it's treasury bonds and we've seen with banks bankruptcy that's sometimes these losing value so this is the risk you need to take into account as well

so a few companies are doing are trying to create Frameworks to to assess this and to give grades to these centralized stable coins the the main one is makerdio which releases a framework called seishu for stable colonization assessment framework Unified and where they grade basically on a lot of aspects the different stable coins and they they picked the one that they'll take for backing die so here is the results of of this framework and you can see that they emphasized a lot Revenue generation right so the the main thing they considered was how much this tablecon was paying and what was the

agreement with the entity disclosing uh emitting this table coin so we've created another one with angle protocol where we are assessing uh Euro stable coins and you can see uh at the on the left all the topics we've considered so market cap because of course the more liquid is a stable coin the less risk you're taking because you're able to exit longevity because it's it factors in our robust team is and so on but as well uh the fees smart contract safety the team regulatory framework and so on so the bad news is that we we haven't found the perfect cures table cons yet everyone has grades below uh 50 over 85 so we can do better on this but

my point here for as far as centralized stable coins are concerned is that we really need someone independent because we were stable conditioner right we cannot grade the other of course so we need like rating agencies that will label these table coins and that will do the work for you because we're always saying it's transparent you can do your own research the truth is on this topic you can't you need someone to do it for you you need someone to present you the results say this one is a triple a stable coins this one is a triple B for this and these reasons here is why it's leaking it's lacking raw business no no uh down to to decentralized table coins so decentralized table coins basically they you you you take a token

and this token is backed either by other stable coins either by non-stable assets that are issued through a CDP so a boring module where you can deposit collateral and borrow assets borrow the stable coin and so the first thing is that is that when you when you consider when you assess the risk of such token it's exactly the same thing and where as when you're holding a usdc on AV or some token uh which is in fact a stable coin right uh on on a boring protocol on compound cusdc or so on behind this token you have some cache like the reserves that's lending protocol have has and you have some non-stable assets

and some assets denominated denominated and other occurrencies that rep that represent the stable gun that have been borrowed and all these all this basket that is baking backing your token can vary in exposure and in fact this is the main risk we we're frequently talking about like loan to value and a bunch of risk parameters but what history tells us is that what what what really matters to our server quantity is backing assets going to zero like not slowly decreasing and when an asset goes to zero what we've noticed so here just to show you that the the this entire stable coins are have been really progressing

forward in the past year because now you have live balance sheets of maker for x and all the major ones which is a huge Improvement you can see in real time which assets are backing the stable coin and on which quantity so you can see in real time what you are exposed to so here it's the balance sheet of maker it is the one of frax and you can see that at the top you have own stable assets on the middle you have lent assets and if you dig a bit into this you can you can you can clearly see your exposure in real time but what we've noticed and what's stand out very clearly during the USD CD Peg is that when you have an automated system a uni

swap AV all protocols in fact you're left the the protocol is left ending the wheat bag so what I mean by this is that if you take let's first go here if you take the lp tokens on curve and our new swap when one of the underlying goes down the lp token goes down and is left holding only this week token and when you the same thing goes for maker for example during the usdc depot everyone was was swapping gusd USD to gusd using die and so in fact they were swapping the reserves backing day so maker was left exposed to the weakest

asset and the only thing that present that prevent maker from going really bankrupts on was of course usd's European but as well direct limits they had implemented and all the techniques they had to prevent this from happening at a large scale and at a very large scale and so I'll conclude by by saying that from all these learnings we're currently developing at angle first to stable coins to assess the quality of centralized assets that we are taking in our baskets of assets to to issue our stable coins but then we're focusing our model on exposure control and by exposure control I mean in the worst case if this asset goes down how

many how much are you exposed and I think that's the the key metric that you need to present users and that we should be focusing on when assessing the the robustness of decentralized evercoin thank you thank you