Risk Analysis

Innate risks of Synthetic Options on Umoja

The primary risk associated with Synthetic Options relates to exchange counterparty risk, as the Synth Option algorithm holds token and derivative positions on centralized exchanges (as of Beta & Mainnet V1).

To reduce these risks, we are currently onboarding off-exchange service providers such as CEFFU and Copper, to act as custodians and hold end-user collateral offline. By doing so, no protocol collateral is ever held on a centralized exchange, and exchange failure risk is substantially reduced.

It is important to understand that we are not selling options: we are running an algorithm on behalf of our clients that attempts to replicate an option on a best-efforts basis. As such, we do not have market risk or short options risk to clients.