⚠️Risks
Depending on how you use Zeno, you will be exposed to different risks. We discuss them here:
Risk to All Users
Smart Contract Risks
Risk:
Nothing is in this world is entirely risk-free. Accidents do happen and just like how any DeFi protocols are still subject to smart contract risks, it would be dishonest of us to say that Zeno is not susceptible to smart contract risks.
Mitigation:
As users' funds security is our highest priority, our team follows a highly rigid internal code review process to ensure our codes are secure.
Our contracts have also gone through an extensive security audits as an additional layer of security to ensure that are codes independently verified as secured by cyber security professionals.
Network Reliability
Risk:
Degradation of RPC node during periods of high congestion on the blockchain. When this happens, transactions might get delayed in processing and confirmed on chain which could result in trigger orders and TP/SL not getting executed correctly.
Mitigation:
We have enhance our system's resilience by implementing fallbackable RPC nodes from various providers such as Infura, Quicknode, and Alchemy as redundancies.
We've introduced "GasKeeper," an automated gas top-up mechanism for all our keepers. This solution utilize the robust infrastructure provided by Chainlink Automation, adding an extra layer of assurance that our protocol remains robust and in the time of high traffic.
Risk to ZLP Depositors
Accrual of Losses from Traders' Profits
Risk:
As the liquidity in ZLP acts as the counterparty to the traders at Zeno, the fund profits when traders, as a group, accrue losses from trading. By the same token, ZLP also accrues losses when traders accrue profits, making ZLP depositors the direct party to absorb the losses.
Mitigation:
We have implemented multiple mechanics to safety parameters to protect the depositors of ZLP vault from taking on taking on too much risks. More details here.
Please note that during the Public Open Beta when the liquidity of ZLP is still thin, the profits / losses generated by a trade can have a relatively large impact on the LP PnL. However, as our liquidity deepens through the ZLP BOOST and we attract more users, our protection mechanisms will become more robust, making the depositors less susceptible to anomalies.
Fully Utilized Assets in ZLP
Risk:
Assets in ZLP are used as liquidity for leveraged traders. When there are open leveraged positions, assets within the ZLP are reserved to pay out as profit to the traders depending on the size of their trades. This means there's a possibility, even though highly unlikely, that all the assets within the ZLP are being reserved for open positions. When that happens, depositors will not be able to withdraw any liquidity from the ZLP fund until utilization of the underlying assets goes down.
Mitigation:
Our Borrowing Rate model for each asset is directly proportional to utilization. As the utilization goes up, the Borrowing Rate also goes up. When this happens, leveraged traders would be incentivized to close their leveraged positions to avoid expensive Borrowing Fees.
Delayed in Deposit / Withdrawing ZLP
Risk:
In order to accurately calculate the PnL and the share price of ZLP, all pending liquidation transactions must first be processed before allowing a deposit or withdrawal ZLP transactions. During a time of network congestion or a downtime due to other technical issues, where the liquidation tx don't get processed, the deposit / withdrawal transactions could be delayed.
Mitigation:
We have enhance our system's resilience by implementing fallbackable RPC nodes from various providers such as Infura, Quicknode, and Alchemy as redundancies.
We've introduced "GasKeeper," an automated gas top-up mechanism for all our keepers. This solution utilize the robust infrastructure provided by Chainlink Automation, adding an extra layer of assurance that our protocol remains robust and in the time of high traffic.
Risk to Traders
Liquidation
Leveraged traders run the risk of liquidation when the losses of their open leveraged position exceed the liquidation threshold.
Mitigation:
ZLP relies on a reliable source of price feeds to protect leveraged traders on the platform from scam wicks or short-term rapid price movements in a volatile market condition. This greatly reduces the risks of liquidation for the position owners.
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