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Risks

Money Protocol is a decentralized financial application that operates on the RSK blockchain and executes smart contracts to facilitate transactions. The decentralized nature of Money Protocol offers many benefits with increased freedom to transact. This decentralized design has implied requests described below, some of which are described below. These risks do not represent all risks possible with using Money Protocol.

Smart Contract Vulnerabilities​

Money Protocol operates as a set of smart contracts executing on a blockchain. A bug or a hack of these contracts that results in losses can never be completely excluded. Nevertheless, Money Protocol is based on pre-audited contracts, [see Security Audit]. These pre-audited smart contracts have operated in mainnet environments for a significant period, proving a level of high confidence in their robustness and security.

Depeg Risk​

BPD to USD peg risk - BPD is not 100% guaranteed to stay 1-to-1 in value to 1 USD at all times, stemming from market-based activity to manipulate the BPD 1-to-1 peg. Money Protocol addresses this risk by allowing redemption of below-market value BPD for $1 value worth of Bitcoin to remove some BPD off the market limiting circulating supply and therefore increasing its price back up to $1. Conversely, overpriced BPD would reach a natural limit of $1.10. In the unlikely scenario where the value of 1 BPD exceeds $1.10, arbitrageurs can lock up $110 worth of Bitcoin, take out a loan of 100 BPD, and sell it for a profit. See price floor stability and redemptions for more info.

System insolvency​

System insolvency is defined by the total system collateral ratio being less than 100%. This risk can play out if BTC price drops at a rate faster than when the system can react and process liquidations. For example, BTC price dropping by 30% in less than 15 min can cause system insolvency - a highly improbable event but we want to state here to illustrate a potential risk regardless of how improbable. For context to the aforementioned unlikely scenario, should it occur, we would expect the BTC price to rebound quickly to previous price levels due to its innate demand and liquidity as a hard asset allowing Money Protocol to return to solvency.

Oracle Risk​

To get RBTC/USD price data Money Protocol relies on an oracle system provided by Money-On-Chain (MOC) price feed and RSK Oracle price feed as a secondary back-up price Oracle.

One of the primary risks associated with price oracles is the potential for price manipulation. Attackers can exploit vulnerabilities in Oracle systems to manipulate the price feed, leading to inaccurate asset prices that can cause incorrect liquidations.

MOC Oracle mitigates price attacks through economic incentives, price data consensus, and decentralization among its price providers. More information on its design and resilience can be found here.

For redundancy, Money Protocol also diversifies its oracle price feeds. In addition to MOC, Money Protocol utilizes RSK Oracle provided by IOV Labs should the MOC Oracle fail to provide a price feed when called for a price at a given time.

The above speaks more towards exploiting oracles. Regarding market manipulation of the Bitcoin price, it is worth noting that a price manipulation attack on Bitcoin itself is much harder to achieve by a malicious actor due to Bitcoin’s high liquidity, overall trading volume, and market depth.