Depending on how you use Buffer, you will be exposed to different risks. We discuss them here:

Risk to All Users

Smart Contract Risks:

Smart contract risks: audits, bug bounties, and internal testing mitigate systemic risks, it is still important to always DYOR and be cautious of risks with any smart contract or decentralized application or complex systems;
  • As users' funds' security is our highest priority, our team follows a highly rigid internal code review process to ensure our codes are secure.
  • Our contracts have also gone through an extensive security audit as an additional layer of security to ensure that our are codes independently verified as secured by cybersecurity professionals.

Risk to BLP Depositors

Accrual of Losses from Traders' Profits

As the liquidity in BLP acts as the counterparty to the traders at Buffer, the fund profits when traders, as a group, accrue losses from trading. By the same token, BLP also accrues losses when traders accrue profits, making BLP depositors the direct party to absorb the losses.
  • We have implemented multiple mechanics to safety parameters to protect the depositors of the BLP vault from taking on taking on too many risks. More details here.
  • In addition, based on the historical data of other decentralized vAMM-based trading protocols, traders, as a group, tend to make a loss over time.
    • Traders on GMX have accrued a total of $45mn in losses since the protocol inception (Aug '21 - Sep '22) or roughly 12.5% of the market-making liquidity.
    • Traders on Gains Network have accrued a total loss of $3.5Mn (Oct '21 - Sep '22) or roughly 35% of their market-making liquidity.
    However, as our liquidity deepens through the BLP surge, and we attract more users, our protection mechanisms will become more robust, making the depositors less susceptible to anomalies.