ATOM Earn Strategy - Risk Report
The ATOM Earn Strategy is now live!
With SwissBorg Earn, you can stake your ATOM and expect a 15% APY.
Read on to learn how we checked it and the key points you need to know.
- Liquid staking represents one of the safest options in DeFi to generate yield.
- We only rely on secure and trustable staking providers.
- The yield (APY) is derived from ATOM staking – contributing to the Proof-of-Stake consensus mechanism.
- The Cosmos network was founded in 2014 by developers Jae Kwon and Ethan Buchman. The first brick in the creation of the project was the development of Tendermint, the consensus algorithm that would go on to power Cosmos. By 2016 Cosmos had turned into a reality and on 13 March 2019 the Cosmos Hub was launched.
- ATOM liquid staking represents a very liquid yield-generating investment. There is no lock-up period and funds can be redeemed at any time.
- Risk Checklist: No risk is deemed a concern for this strategy.
Nevertheless main potential issues could be related to:
- Counterparty risk
- Protocol liquidity risk
1. Strategy explained
The strategy is fairly simple; deposit ATOM on the provider’s staking pool and receive staking rewards.
Lockup period: None. Assets can be redeemed at any time.
Only trustable and sound staking providers with top scores from CER are considered.
CER’s cybersecurity ranking is based on a comprehensive methodology that accounts for more than 20 indicators, including server and user security, a penetration test, bug bounty, and funds insurance.
At SwissBorg we make sure that these are reliable and battle tested, and adhere to the highest standard of security.
The SwissBorg trust score for employed staking protocols is ‘green’ meaning they are trustworthy.
Project Continuity Risk
Overall Continuity Risk is deemed low.
Only top staking providers with reputable history of service are selected. This minimises the risks of continuity issues which would require the staking activity to be moved to a new provider.
Project continuity risk is set to 1/10.
Overall Counterparty risk is deemed low.
Counterparty risk exists whenever an asset is handed over to an external provider. Any credit events involving the staking provider could affect the assets that have been entrusted to them.
That said, staking via a 3rd party is fundamentally different from depositing funds into a lending protocol that later becomes insolvent.
We seek to select only trustable staking providers in order to minimise counterparty risk.
Counterparty risk is set to 3/10.
Liquidity Risk is deemed low.
Funds held by the staking provider are redeemable at any time (unless a different specific agreement was agreed upon).
It is possible that in the event of extreme adverse market conditions some of the providers’ funds would be placed under pressure and, although very unlikely, this could pose liquidity constraints on the platform.
Liquidity risk is 3/10.
Complexity of strategy is low.
The strategy involves depositing ATOM which is used for staking purposes; to validate the transactions on the Cosmos network.
Staking is the most basic form of yield generating strategy in crypto and therefore more reliable.
Complexity of the strategy is 1/10.
Scalability risk of strategy is low.
Staking is a highly scalable practice. Indeed, the more stakers are participating, the higher the safety of the blockchain.
Scalability risk of the strategy is 1/10.
Sustainability risk of strategy is low.
The yield obtained from this strategy is fully sustainable as it comes from participating in the validation of Cosmos transactions, the Proof-of-Stake mechanism.
Proof-of-Stake is quite energy efficient when compared to Proof-of-Work chains like Bitcoin and has therefore practically no negative impact on the environment.
Sustainability risk of the strategy is 1/10.
Yield risk of strategy is low.
taking provides a constant stream of income with low variability.
Yield risk of the strategy is 1/10.
Slashing risk is low.
The Proof of Stake consensus mechanism requires participants to behave responsibly for the overall good of the ecosystem. For this reason, blockchains penalise validators if they step out of line by slashing the value of their stake. The two most common offences are double-signing or going offline when the validator should be available to confirm a new block.
The best protection against these risks is to work with an institutional-grade validator that protects against double-signing and downtime.
Cosmos’ staking model uses ‘hard slashing’, which sounds a bit violent, but only means that customer funds are at risk of being slashed in the event of ‘double-signing blocks extended validator downtime’.
In principle investors could lose a portion, or potentially all of their investment by participating in staking.
SwissBorg Earn staking strategies seeks to minimise the risk of slashing by employing staking protocols that thoroughly monitor all validators by means of a dedicated team of professional Site Reliability Engineers and Development / Operations experts.
So far there haven’t been any instances of slashing events.
Slashing risk is 3/10.
Liquidity Risks of staking
Liquidity Risk on staking ATOM is low.
Most staking opportunities require the investor to lock-up their tokens for an agreed period, for hours to days, and even months. Regardless of the direction the market chooses during this time, your assets will be out of reach.
In more liquid staking systems however, stake is added to a liquidity pool and redeemable at any time. This is also the case with staking on ATOM.
Liquidity risk is therefore set to 1/10.
ATOM staking comes with little risk.
Because only trustworthy and sound staking providers with top scores from CER are considered when building a staking pool for ATOM, the changes or malicious players is negligible, making the ATOM Earn Strategy a solid player in the space.
Since going live in 2019, ATOM has gained prominence thanks to its ability to provide complimentary blockchain development frameworks that are created for the developers on the network. This allows these developers to launch their own blockchains in a scalable and interoperable manner. With yield coming from securing transactions on the Cosmos blockchain, the protocol is continuing to solidify its uses and reputation in the space.
Additionally, the fact that ATOM staking represents a very liquid yield-generating investment with no luck-up periods and available redemption at any time, gives stakers extra incentive to contribute.
The SwissBorg Risk Team ranks ATOM staking as a Core investment, one for an investor with some understanding of DeFi and yielding, who is willing to take on a minimum amount of risk – while remembering that there is no free lunch! – in exchange for an acceptable reward on ATOM.
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