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Risks Associated with Multiple Protocols

Swaap Strategy vault uses many protocols to create strategy vaults. This introduces more risks. The risks come from the complexity and dependencies of these protocols. To fully assess the risks of using complex, composable DeFi strategies, we must evaluate the risks of each used protocol. Also, at any time, the vault may allocate its assets to specific protocols. Losses from a protocol would then affect users in proportion to their contributions.

The following risks are identified based on the utilized strategies from the initial launch of Swaap Earn:

Recursive Staking Strategy: The Swaap Strategy vault uses a recursive strategy. It leverages stETH on lending protocols to enable borrowing ETH. Users must understand the risks of DeFi leverage. These include governance by code and on-chain lending market risks like bad debt and liquidation. They also include the risk of stETH depegging from ETH.

Market-Making Strategy: Another core strategy employed by Swaap strategy vault is market-making. Users who do market-making on Swaap Maker v2 face the risks of the protocol. More information on these risks can be found in the dedicated section here

Vault-Specific Risks

Smart Contract Risks: There is an inherent risk that Swaap Earn smart contracts may contain vulnerabilities or bugs. Multiple security measures are in place to reduce this risk. These measures include unchangeable core contracts, a simple open-source code base, and code audits by Chainsecurity and Quantstamp.

DAO Governance: Swaap vaults are governed by DAO governance. They are managed by a multi-sig team. Governance has the authority to set rules and leverage ranges within protocols. It can also approve or remove protocols from the available strategies. Governance can also give strategists a permissioned role. It lets them adjust the vault within set limits. But, they cannot withdraw funds from the vault. The Team Multi-Sig has limited emergency access. It can adjust protocol ratios, pause withdrawals, and pause rebalancing. This is without altering ownership of assets in the vault.