Risks and Benefits of being a Mainnet Alpha LP

Risks Disclaimer

Nabla’s Smart Contracts have been rigorously tested, reviewed, and audited. Yet they introduce a completely novel approach that is not yet battle-tested. Therefore, there is a non-negligible risk that the Smart Contracts may not be safe, and exploits or economic attacks cannot be fully ruled out. Please be aware that your deposited funds are at risk, and you might, worst case, lose your entire deposits. Therefore, never deposit more than you can afford to lose. In general, the Backstop Pool carries a higher risk than the Swap Pools.

Backstop Pool LPs

Risks:

• In early Mainnet Alpha, there is a 60-day delay period for Backstop Pool withdrawal requests. After the delay period passes, there is a 14-day Claim Period during which you can withdraw your funds. This delay period serves the initial system stability and will be reduced to a shorter delay period (most likely 14 days) once the Mainnet Alpha phase has concluded.

• The Backstop Pool, by design, takes on all risks in the system, most notably:

  • Inventory Risks: Imbalances in the system (= under- and/or overfull Swap Pools) lead to inventory risk if the price of an asset that is in shortage (or surplus) changes. This results in a direct profit or loss to the Backstop Pool. This risk is significant yet non-directional (“cash-neutral”).

  • Residual Impermanent Loss: Whilst our oracle-informed pricing is expected to almost entirely avoid Impermanent Loss (IL), there can be instances of residual directional IL, i.e. in cases of high price volatility, which would accrue as losses to the Backstop Pool.

  • Oracle Risks: Nabla’s pricing algorithm depends on external oracles to derive fair prices. In case of oracle failures or manipulation, this might lead to losses to the Backstop Pool. We have several security measures in place (and more on our roadmap) to mitigate this risk, but we cannot rule it out entirely.

  • Smart Contract Risks: By design, the Backstop Pool covers all system losses, including potential losses due to bugs or economic exploits.

Benefits:

• The Backstop Pool earns 60% of all swap fees during the Mainnet Alpha phase, which leads to an expected 3-3.5x higher organic APR compared to the Swap Pool average.

• Backstop Pool deposits earn 3-3.5x more $AMBER points compared to a swap pool deposit of the same amount.

• The first stage of the Mainnet Alpha rewards is described here for the BSP.

Swap Pool LPs

In contrast to the BSP, Swap Pool (SP) deposits are, in theory, protected on Nabla. However, as Nabla is still in an experimental stage, this protection can’t be taken as guaranteed, as we cannot fully rule out the risk of critical smart contract bugs or catastrophic black swan events.

Risks:

As long as Nabla works as intended, the risks of LPing in a Swap Pool (apart from the risks concerning the deposited asset itself) are very limited and boil down to:

• Unfavorable slippage during withdrawal: If the Swap Pool you want to withdraw from is out of balance, you’ll incur a slippage. While this slippage is minimal for overfull pools, due to the flatter shape of our slippage curve in this area, it may get substantial if you want to withdraw almost all (or even more than there is) remaining liquidity from an underful pool. In this case, you can redeem USDC from the backstop pool instead - which only comes with a minor fixed “security fee.”

• In the very unlikely edge case of a completely emptied/worthless Backstop Pool, the Swap Pool deposits would no longer be protected. During normal operations, several security mechanisms are in place to prevent this scenario (although not all of them are already live during the Mainnet Alpha phase). But in case of a catastrophic event (e.g. a devastating economic exploit), there is a residual possibility for such a scenario to happen. In this hypothetical case, Swap Pool LPs would not be able anymore to redeem through the Backstop Pool and would have to accept the incurring slippage when withdrawing (which could, in theory, be up to 100% in case of a completely empty pool).

Benefits:

• Swap Pool deposits are always and instantly withdrawable

• Protected by the Backstop Pool

• Swap Pools earn (during Mainnet Alpha) 40% of all swap fees (accrues in the pool whose balance gets reduced in a swap)

• The first stage of the Mainnet Alpha rewards is described here for the swap pools.