What are the risks associated with the Dollar Balance?

The Dollar Balance carries risks that vary by mode. In Custodial Mode (Stablesats):

One of the risks of using Stablesats is counterparty risk with the exchange. If the exchange goes under, the collateral may be unrecoverable. This risk is inherent to any product that involves a third-party custodian, which is why it is important to choose a reputable exchange and conduct due diligence before using any financial product.

Another risk to consider is the auto-deleveraging feature of derivatives exchanges for perpetual contracts. The position could be closed despite being in profit, which can lead to an under-hedging situation. This risk is specific to the use of derivatives products, and users should be aware of the potential for auto-deleveraging when using Stablesats.

Funding is another potential risk associated with Stablesats. Historically, there have been more longs than shorts on derivatives exchanges, meaning that funding is revenue-generating for short positions. However, this may not always be the case, and funding could go negative for an extended period of time. Users should be aware of this risk and monitor the funding rates when using Stablesats.

It is important to note that Stablesats is a relatively new feature, and its risks and benefits are still being studied and evaluated by the Bitcoin community. To learn more about Stablesats and its associated risks, users can view the GitHub repository, read relevant resources such as Luna Bros, Inc. (Bitcoin-Backed Stablecoins section) and thoughts from Kollider, and consult with financial professionals.

In Non-Custodial Mode, the Dollar Balance holds USDB, a stablecoin issued by Brale. USDB carries its own risks, including issuer and smart-contract risk. See the Terms and Conditions for details.