Execution Risk

There are 2 main execution-related risks with deUSD:

Slippage

While deUSD mitigates much of the tail risks around sustained negative funding rates, it introduces additional execution-related risks (which the OCF is built to cover).

The OCF serves less as a traditional "insurance fund" to protect against sustained negative funding rates: instead, its built to cover execution related costs from moving backing to (and from) sDAI.

As described in the Over Collateralization Fund (OCF) page, deUSD reduces exposure to funding rates as funding rates become more negative. It does so via the health of the OCF - as this decreases, more and more of the backing moves to sDAI.

In certain scenarios when the OCF is too small relative to the deUSD TVL, the execution costs could represent a large portion of the OCF, eating away at the fund, creating a further move into sDAI, etc.

To mitigate this, deUSD will only scale up significant exposure to funding yield after the OCF size grows. For the initial community liquidity bootstrapping phase (Season 2 of the Apothecary), an elevated portion of the backing of deUSD will be comprised of sDAI. The Season 2 Apothecary program will serve as a community liquidity bootstrapping phase, with all protocol yield going to build up the OCF.

deUSD will be fully backed by sDAI when roughly 20% of the OCF remains. This buffer serves as an additional protection for any execution-related slippage.

Performance Issues

In some unlikely situations, deUSD and transactions relating to it could face scalability and performance issues based on external points of reliance:

• Network Congestion: High transaction volumes can lead to network congestion, increasing transaction costs and confirmation times. Mints and redemptions could take longer than expected, creating short term variations in prices

• Attacks on External Networks: Some networks deUSD relies on could come under various forms of economic or technical attack, having adverse impacts on deUSD.

Elixir mitigates these risks best as possible by choosing to put key points of reliance on battle-tested blockchains like Ethereum, and only utilizing the longest-lasting and highest quality venues for crucial features like liquidity.