Risks
Every form of financial platform has risk involved in their operation. We discuss them here.
Risk to Traders
Smart Contract Risks: Even though audits, bug bounties, and internal testing can reduce the risk of smart contract vulnerabilities, it is still important to do your own research and be cautious when interacting with any smart contract, decentralized application, or complex system. Do not approve any transaction if you are not sure.
Mitigation:
We prioritize the security of our users' funds above all else. Our team follows a rigorous internal code review process to ensure our code is secure and verified.
Our smart contracts have also been thoroughly audited by cybersecurity professionals.
Risk to FLP Depositors
Accrual of Losses from Traders' Profits
Since the liquidity in FLP acts as the counterparty to traders on FireUp, FLP profits when traders lose money overall. Conversely, FLP loses money when traders make money overall, making FLP depositors directly responsible for absorbing the losses.
Mitigation:
We have implemented multiple safety parameters to protect FLP vault depositors from taking on too much risk.
Additionally, based on historical data from other decentralized vAMM-based trading protocols, traders tend to lose money over time.
For example, GMX traders have lost a total of $45 million since the protocol's inception (June 2021 - August 2022), or about 12.5% of the market-making liquidity. Gains Network traders have lost a total of $3.5 million (May 2021 - July 2022), or about 35% of their market-making liquidity.
However, as FLP liquidity deepens and we attract more users, our protection mechanisms will become more robust, making depositors less vulnerable to anomalies.
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