Yield Strategy Risks

USX’s yield model combines onchain strategies and offchain strategies to generate sustainable returns while preserving principal. These strategies introduce distinct risk categories, from smart contract vulnerabilities to offchain counterparty exposure. This section outlines those risks and the mechanisms USX uses to manage and mitigate them.

Trading Firms Risk

A portion of sUSX’s offchain yield is generated through allocations to our partnered trading firm. They execute market-neutral strategies designed to provide stable returns with minimal directional exposure to the broader crypto market. We understand that this introduces a distinct set of risks related to offchain capital deployment.

Risk Overview

Engagement with trading firm introduces counterparty and operational risks, including:

• Potential trading losses or failure to maintain principal value

• Operational, compliance, or liquidity failures within the trading firms

• Temporary delays in recalling allocated funds

• Performance variability that may affect aggregate protocol yield

While these risks cannot be eliminated entirely, we have implemented robust mitigation measures.

Risk Mitigation Measures

• Principal preservation: Capital provided to the trading firm are governed by contractually structured capital agreements designed to preserve deployed principal.

• Vetting process: The trading firm has undergone comprehensive due diligence, including reviews of financial stability, risk controls, and operational history.

• Transparency audits: USX.Capital will undergo independent third-party audit verification, with reports made publicly available upon completion.

• Transparency dashboard: Launching at mainnet, it will provide visibility into key metrics, including:

  • Total funds held in the offchain yield component

  • Current interest rate (APY) across strategies

  • Distribution of funds across centralized exchanges (CEXs)

• Onchain reserve fund: To mitigate potential losses from offchain counterparties, USX maintains a reserve fund. More info can be found Reserve fund.

• On redemptions: When you request to redeem sUSX to USX, USX.Capital manages the entire withdrawal process from the trading firm back to the protocol. Capital deployed in offchain strategies cannot be recalled instantly, as trading positions need to be systematically unwound to preserve principal and minimize slippage.

  • The redemption (sUSX → USX) process takes 15 days to complete.

  • Redeeming USX → USDC separately takes 14 days.

  • Alternatively, you can burn sUSX directly for USDC, which takes 15 days.

  • Note: instant redemptions for both sUSX -> USX and USX -> USDC is available through liquidity pools, but fees apply.

Verification with zk-attestation

USX’s offchain yield strategies are verified through an external platform which verifies financial data in real-time while preserving privacy.

It retrieves balance data directly from CEXs used by USX's trading partners and uses ZK Proofs, trusted execution environments (TEEs), and verifiable Merkle tree attestations to confirm that offchain capital is accurately reported and has not been altered. This integration provides verifiable transparency into USX’s offchain yield generation while preserving the privacy of trading data.

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DeFi Strategy Risk

The onchain yield component of USX is generated by deploying capital into various strategies through Blend’s coordination system.

This introduces risks from 3rd party protocol’s smart contract vulnerabilities, risk of impermanent loss, or sudden yield changes. A single point of failure in our partner protocols could lead to significant loss of funds, directly impacting USX peg (or value).

Security & Due Diligence

Blend’s infrastructure:

USX protocol deploys capital across curated onchain yield strategies through Blend that include lending markets, tranching systems, and liquidity venues. Each strategy executes through Blend’s non-custodial coordination layer which automates allocation, rebalancing, and risk enforcement according to defined policies.

Capital remains signer-bound within individual Gnosis Safes, ensuring isolation and non-custodial control, while Blend manages cross-chain execution and delta-neutral balancing. This structure allows USX to operate as a unified savings protocol on top of Blend’s neutral automation network.

Blend has undergone six comprehensive security audits with reports available at https://docs.blend.money/resources/audits.

Mitigation Measures:

• Strategy diversification across multiple uncorrelated DeFi protocols to prevent single points of failure.

• Rigorous protocol due diligence including comprehensive code reviews and audit verification.

• Dynamic rebalancing with continuous monitoring and capital reallocation based on risk/reward profiles.

• Position limits capping allocation to any single strategy to minimize potential losses.

Reserve Fund

The reserve fund is a system-wide protection mechanism designed to cover potential losses across both onchain and offchain strategies. USX.Capital dedicates 50% of collected protocol fees (10%) from all strategies to maintain an onchain insurance fund, which serves as a capital protection buffer.

• The insurance fund targets a minimum coverage of 2% of deployed principal.

• There is currently no upper limit on the fund size.

• The community will be notified before implementing any changes to the fund.

• The contract address for the insurance fund will be published in Smart contract addresses after mainnet launch.

For our full risk disclosure statement, please refer to important legal disclosures and risk disclaimers.