Risks

Obligatory risk disclaimer

Market risk: Digital options can be considered a high-risk investment since a protocol user will either make a fixed amount determined at vault close, or lose their entire investment - no in-between.

Asset risk: The underlying assets utilized for exchange on Contrast may fluctuate in dollar-denominated terms from an assumed value, i.e. .95 cents per 1 USDC in times of significant market stress, credit events and other black swan style events.

Liquidity risk: Users trade against other users instead of market makers; the liquidity conditions for any given vault may be low, thus providing erroneous or askewed payoffs relative to risk; furthermore, because of the liquidity-centric design, payoffs are subject to potentially significant delta fluctuations.

Gap risk: The protocol utilizes a locking mechanism where users are no longer able to depoit or withdraw, wherein the price movement of the underlying reference is subject to significant change that may drastically impact the return profile of any given user.

Smart contract risk: Contrast utilizes smart contracts to operate and as such is subject to potential vulnerabilities/exploits which can cause significant or total loss to users. We encourage users/community to exercise due diligence before interacting with any smart contracts and report any bugs found to the team. A comprehensive list of contracts the protocol uses can be found here.

Oracle risk: The protocol relies on an external oracle for determining which side of a vault is paid out; as such, if the oracle provides an incorrect value it is possible that a payout may be incorrectly issued.