⚠️Risks & Mitigations

Users need to do their research and fully understand the risks associated with Amphor vaults and the broader DeFi ecosystem when using the protocol. The main risks are summarized below, along with various mitigation measures Amphor has put in place to prevent or minimize them.

Market risk

Market risk encompasses the potential risk tied to broader market conditions, which can include bullish phases, bearish trends, or periods of heightened volatility. Market risk can exert either a negative or positive influence on the fluctuation of underlying asset values over time. These asset values can be determined through their inherent characteristics as well as external factors. Market risk implies the possibility of incurring a loss of principal, which may be partial or, in certain extreme scenarios, even total.

The formula of potential principal max loss for Synthetic LP IL-hedged vault:

Bullish bias Bearish bias

Leverage is limited to x2.5 for each Epoch and x4 for post-restructuration (if any).

Maturity is limited to 5 weeks for each Epoch and 8 weeks post-restructuration (if any).

Find the strategy payout simulator here for full visibility of potential strategy outcomes.

==> Mitigation: Amphor relies on a robust automated on-chain risk management framework, allowing it to monitor whitelisted assets, and protocols and determine optimal vault allocation split. Moreover, the strategy is dynamically managed to offset negative market developments and benefit from positive ones.

In Synthetic LP IL-hedged strategies, Amphor protocol can trigger a restructuration to protect the principal from realized loss. Restructuration reduces APR and/or extends epoch duration and/or flips the bias in exchange for widening the price range of the product before contract settlement.

Asset de-pegging risk

A pegged asset tracks the underlying asset's price and is redeemable at a 1-to-1 ratio. The de-pegging risk refers to circumstances when the fixed exchange rate, or peg, becomes detached and is no longer maintained. De-pegging events can occur due to factors related to the pegged asset's intrinsic value - insufficient collateral reserve ('backing'), faulty architecture, or external influences such as speculative attacks and exploits. Consequently, an asset's de-pegging can result in significant financial losses.

==> Mitigation: Amphor protocol continuously monitors the market using on-chain tools to anticipate and mitigate the impact of de-pegging events.

Custody risk

User-deposited assets are stored inside the Amphor vault and transferred to the protocol's multi-sig for the duration of the Synthetic IL-hedged LP epoch. The multi-signature wallet securely safeguards user assets throughout the strategy's duration and ensures their return upon maturity.

==> Mitigation: Safe custody is ensured by Gnosis Safe multi-signature solution.

Smart contract

Assets inside the protocol are stored and moved using smart contracts, which undergo thorough audits to prevent vulnerabilities and potential exploit vectors. However, it is important to note that software has the potential to contain flaws despite these precautions. If targeted and exploited, it could lead to a loss of user deposits along with any accumulated rewards at the time of the attack. By engaging with Amphor protocol, the user unilaterally accepts these risks and should not hold the protocol accountable in case an exploit occurs.

==> Mitigation: Protocol smart contracts are audited by multiple third-party firms to minimize the likelihood of potential vulnerabilities. Audit reports are public and available in the following section. Additionally, RedeFine and HyperNative solutions are deployed to monitor, prevent, and mitigate smart contracts exposure.

Assets pricing

The synthetic LP IL-hedged strategy relies on price oracles to fetch the underlying asset values (spot price) at specific points in time. Oracle feeds are relied upon to determine whether the underlying asset price is between the current epoch's boundaries and for the payoff (rewards) computation.

==> Mitigation: Amphor protocol uses Chainlink ETH and BTC price feeds for the underlying vault architecture and UI representation.