Risks of vaults
A vault can lose money. This page covers what can go wrong in a vault, and what the contracts do to limit it.
Prices move
A vault holds two tokens, and its value goes up and down with their prices. In a stock vault, for example, the vault loses value when the stock falls, even while it's earning.
Impermanent loss
Inside its range, a vault sells a token as its price rises, and buys it as its price falls. So when a price moves a lot in one direction, the vault ends up worse off than if you had simply held the two tokens. This is called impermanent loss. It shrinks again if the price comes back, and becomes permanent if it doesn't, or once the range is moved.
What a vault earns can make up for it, but not always. Each vault's page has a chart, Vault vs holding, that compares the two for that vault.
Out of range
While the price is outside a vault's range, the vault earns nothing. The agent may wait for the price to come back, and the vault earns nothing while it waits. See Rebalancing.
The agent can be wrong
The agent can pick a range that the price leaves quickly, or wait when moving would have been better. Each of its moves comes with a forecast that's scored afterwards, so you can see how often it's right: Track record.
Its limits cap what one bad call can cost: at most one move an hour, only at calm prices, and it can never withdraw anything. See What it can't do.
Reward tokens can lose value
Vaults on up33 earn UP. UP's price can fall, and the amount of UP paid to a pool can change or stop. The vault sells its UP at every harvest, so it never holds much of it for long. But what the rewards are worth depends on UP's price when they're sold.
Thin pools and price manipulation
In a pool with little money in it, one large trade moves the price a lot. Someone could try to push the price for a moment, to make a vault trade at a bad price.
The contracts limit this:
- Calm prices only. A vault only moves its range, adds earnings back in and accepts deposits while the price is close to its recent average.
- A floor on reward sales. Each sale must get at least 97% of the reward's fair value.
- Limits on your own transactions. The app sets a price limit on every deposit and withdrawal. If the price moves further before your transaction goes through, it's cancelled instead.
Token issuers
Some tokens have an issuer that can stop them from moving. Robinhood can pause a Stock Token or block an address, and Paxos can freeze USDG for an address.
A withdrawal pays out both of a vault's tokens at once. If either one can't be sent to you, the whole withdrawal waits until it can. See Stock vaults.
Software
A vault runs on smart contracts, on top of the exchange's own contracts and Robinhood Chain itself. Aurum's contracts have been reviewed for security, but no review can promise there are no bugs, and a bug could lose money. Nobody can upgrade a vault's contracts once they're deployed. Aurum can change some of a vault's settings, such as its limits and its fee, but the fee can never go above 15%.
In an emergency, a vault can stop taking deposits, or pull its money out of the pool and hold it in the vault. Withdrawals stay open either way. How your money is protected covers who can do what.
The APY isn't a promise
The APY shows what a vault has earned lately. It changes with trading and rewards, and it's zero while the price is out of range. See Why the APY changes.