Asset categories' specific risks
Published on Dec 15, 2023Updated on Apr 4, 20244 min read
Please review the following risks which may apply to certain crypto assets listed on the OKX exchange:
| Assets | Risk Category | Description |
|---|---|---|
| Stablecoins: Stablecoins are designed to have a value that is claimed to be pegged to an underlying asset such as fiat currencies (eg USDT), but they are not immune to price fluctuations, and there is no certain that their value will remain stable or pegged 1:1 to the linked reserve asset. Stablecoins use a variety of ways to maintain stability, each with their own risks. This is not an exhaustive list of all the risks to stablecoins: | ||
| Stablecoins | Counterparty Risk | Certain tokens may rely on assets held with third parties which may or may not not be verifiable or visible to the token holder. Legal recourse to any pledged assets may be limited. |
| Depegging Risk | Certain tokens, known as "stablecoins" may attempt to link its value to a specific fiat currency or index. The pegs in so-called "stablecoins" have historically been challenged resulting in potential/realised losses for holders. So called "stablecoins" depend on complex algorithmic outputs, reserves that may not be demonstrably proven or accessible or redemption mechanisms that do not perform as expected. | |
| Algorithmic Risk | Investments in cryptocurrencies are dependent on the continued development and maintenance of underlying blockchain technology. Certain so called "stablecoins" may depend on algorithmic outputs. | |
| FX Risk |
Many stablecoins are denominated in US Dollars, if you are trading using a different currency cross (i.e. USDT/GBP), you will then be expoied to changes in the US Dollar exchange rate. | |
| DeFi tokens: Decentralised Finance ("DeFi") tokens are crypto assets built on decentralised blockchain technology for financnial applications or protocols. Risks linked to DeFi tokens include: | ||
| DeFi tokens | Enterprise Risk | Interactions between multiple DeFi protocols create a situation where a vulnerability or breakdown in one protocol can trigger a cascading effect, affecting other interconnected platforms. |
| Technology Risk | DeFi protocols frequently depend on external data sources or oracles, and any tampering or inaccuracies in these data streams can result in a lack of trust and reliability in the protocols. | |
| Regulatory Risk | Governments and regulatory bodies around the world can introduce new regulations or ban certain aspects of the cryptocurrency market, affecting its legality and viability which could affect token liquidity and/or value. | |
| Legal Risk | Certain tokens may be used for operating a decentralised exchange platform which may contain additional risks: The platform may allow users to participate whom have not been vetted or verified and therefore expose the possibility that users are interacting with sanctioned entities. The platform may be accessible in jurisdictions where some or all the exchange activity should be regulated. If a local regulator deemed the platform activity to be in breach of local regulation, they may request cessation or termination of the service which could affect token liquidity and/or value. |
|
| Market Risk | Given their novelty, the evolving technology involved and lack of traditional asset structure, valuing crypto assets can be very difficult or impossible. This means valuations are determined by demand that is at risk of manipulation in various ways. | |
| Meme Coins: Meme Coins are crypto assets whose value is driven by community sentiment and online trends. Risks linked to Meme coins include: | ||
| Meme Coins | Market Risk | Cryptocurrency markets are known for their extreme price volatility, with values often experiencing rapid and unpredictable fluctuations. |
| Market Sentiment Risk | Cryptocurrency prices can be heavily influenced by market sentiment, news, and social media. FUD (fear, uncertainty, doubt) and FOMO (fear of missing out) can drive irrational price movements and create reputational risk. | |
| Market Manipulation Risk | Due to the technological complexity, low volumes and the decentralised nature of cryptocurrencies, there is a risk of market manipulation by some market participants who can influence prices. | |
| Enterprise Risk | There may be a lack of transparency in the construct of certain tokens or no audits performed on any part of the enterprise. Collateral pools, assets or proof of reserves may be opaque or unverifiable. Audit statements could be unreliable if from an untrusted source. | |
| Model of Operation Risk | Cryptocurrencies may use intricate network or business models that are not fully comprehensible to token holders, resulting in misinformed decisions. | |
| Transparency Risk | Decentralized crypto projects can have founders / foundation / developers who may exert undue influence on the project outcome. These founders / foundation / developers may be anonymous which can lead to an increase in enterprise risk. Disagreements within the Founders / Foundation / Community can lead to events such as forks or dilution which could lead to diminishing the value of previously established assets. Network validators may prioritize their own interests, which may not always align with the overall health or decentralization of the network. | |