Risks

Specific Risks and Mitigation Strategies

In addition to the general risks associated with DeFi protocols, Nebula Finance also confronts specific risks tied to its mechanisms and model. These specific risks include market manipulation, protocol exploits, and price spirals. We have devised comprehensive strategies to address each one:

1. Market Manipulation

Market manipulation poses a significant risk as potential manipulators might artificially inflate or deflate the price of our stablecoin or shares, aiming to exploit the system.

To counteract this, Nebula Finance leverages a Time-Weighted Average Price (TWAP) to determine the stablecoin's price, making it harder for malicious actors to manipulate. We also employ different action phases based on each epoch's TWAP, adjusting taxes, rebates, and rewards accordingly to discourage manipulative practices. Moreover, we are developing safeguards to detect and prevent large-scale price manipulations. Our system is designed to invalidate transactions that may cause substantial price swings, providing an additional layer of security against manipulation.

2. Exploits

Exploits, in which attackers might take advantage of vulnerabilities in the protocol to drain funds or destabilize the system, are a serious concern.

To preempt this risk, Nebula Finance is undergoing rigorous testing and security audits from external firms. We also plan to implement a bug bounty program to incentivize the discovery and reporting of potential vulnerabilities. Additionally, our collateral is stored in a multisig wallet, enhancing the security of stored funds.

3. Price Spiral

A price spiral is a scenario where a fall in the stablecoin's price below its peg can cause a negative feedback loop, further driving down the price. This could lead to a loss of faith in the stablecoin and the protocol.

To avoid this, Nebula Finance has implemented a multi-phase strategy that adjusts depending on each epoch's TWAP action phase. If the price falls below its peg, we activate the Recovery phase, issuing bonds at a discount to constrict supply and push the price back towards its peg. Our Stability Pool also plays a critical role in stabilizing the price during such periods.

Importantly, Nebula Finance has a built-in circuit breaker system that triggers if the NUSD price experiences a 30% drop within a single epoch. This system halts operations to protect the protocol and its users. It's crucial to note that this system is automatic, and we cannot manually trigger it. We can only restart the system following such an event.

While risks are inherent to any DeFi protocol, Nebula Finance has specifically designed its protocol with these considerations in mind. Our commitment to security, resilience, and transparency drives our strategies for risk management, ensuring a robust and reliable platform for our users.