Risks

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Collateral Failure

Collateral failure risk is the primary vulnerability facing feUSD. This manifests in two ways for Felix:

1. Collateral Asset Failure

Collateral asset failure occurs when the value of a collateral asset falls drastically and irreparably. Felix combats this risk by over-collateralizing feUSD with three of crypto's most trusted collateral assets (BTC, ETH, SOL), but the introduction of newer assets like HYPE and PURR will require close monitoring in the early days of the protocol.

2. Bridge Receipt Failure

While Felix supports trusted majors as collateral assets, the aforementioned assets aside from HYPE and PURR are not native to Hyperliquid. In the event of a bridge receipt failure, the bridged versions of these otherwise-trusted assets could abruptly be worth $0.

Liquidation Cascades

Related to collateral failure risk, but slightly different, is liquidation cascade risk. This is the risk caused by self-reinforcing drawdowns in collateral value as liquidations further pile on to adverse price action. It is unlikely that Felix liquidations will materially impact the valuations of BTC, ETH, and SOL, but it remains a relevant concern for assets like HYPE or PURR.

This risk is addressed mainly by the presence of Stability Pool liquidity as well as collateral-specific minting caps.

Smart Contract Exploits

Felix is based off of the Liquity V2 codebase which has undergone substantial auditing as well as formal verification. Still, the protocol has yet to see material time in the wild and cannot be considered battle tested just yet.

Along with these audits on the current codebase, any codebase change is audited before implementation, and Felix has plans to become an immutable protocol in the future.