Risks

Risk 1: Protocol Risk

The May 2025 Cetus hack was a wake-up call for everybody in the Sui ecosystem - security should be the #1 priority to everybody, especially Volo Vault.

Remediation 1: Code Audit in Underlying Protocols

Volo perform thorough due diligence in the security of ourselves as well as all the protocols that we intend to develop a farming strategy with. We act as a second line of defense on top of the auditors so that we know we are deploying user funds responsibly.

Remediation 2: Reduce the Complexity of Strategies

All our current strategies (and future ones) follow the principal of pay-for-risk. This means we always carefully assess the risk-benefit dynamic of every strategy before engaging. This explains why all Volo vault strategies are exposed to no more than 1 protocol except Volo, so that the protocol risk is minimized.

Risk 2: Depegging and Market Risk

As the leveraged yield farming strategies are formulated surrounding pegged assets, whether it’s SUI vs liquid staking SUI, USDT vs USDC vs FDUSD, or vSUI/SUI LP vs SUI, as long as the peg between related assets are maintained, no liquidation/loss is expected even if the market price of the underlying asset fluctuates. However, this is not always the case.

Remediation 1: Careful Selection of Assets

Systematic depeg of an asset happens usually as a result of successful attack on the issue protocol. Volo Vaults are consist of a team of experience quants from traditional finance as well as high-profile DeFi players. Each asset is carefully tested and vetted before it is included in the Volo Vault investment strategy, so that protocol risk is largely mitigated.

We also form strategic partnership with key projects on SUI, e.g. Cetus, NAVI and etc, by forming collaborative working groups to work on multilateral integrations. So rather than a unilateral adoption of Cetus LPs, Volo Vaults is built based on the multilateral integration of partner protocols, which provides a secure and seamless product to the end user.

Risk 3: Negative Yield and Solvency Risk

The leverage yield, whether Approach 1 or 2, is based on positive yield each loop. As each loop earns positive yield, however small it may be, once the strategy stacks such positive yield from each loop, the overall yield is magnified. However, if the rate paid to borrow the assets exceeds that it earns, each loop makes negative yield, which is magnified in the same way through leverage and becomes loss to the user.

Remediation 1: Smart Position Management

Negative yield can occur when large-scale liquidity event happens either on the asset side or loan side, which results in dramatic decrease in asset yield or increase in loan rate. Even without exogeneous impact, mere entry/exit events from Volo Vault could cause drastic rate changes especially on the loan side depending on the design of the lending platform’s interest rate model and current utilization rate.

Volo Vault built an end-to-end simulator that takes potential liquidity events into consideration before deploying users’ fund. More specifically, we cap our investment into each leveraged yield farming strategy to leave a healthy cushion for each strategy so that even if a tail liquidity event happens our strategy still makes positive yield each loop.

We also implemented a yield gauge so that whenever there is drastic drop in farming strategies, our team will be notified to reassess market condition and adjust the strategy if needed.