Zunami Team suggests that DAOs take into consideration the following risks when choosing a stablecoin pool for farming:
- 1.Custody and governance risk: Is there a possibility that a single entity can manipulate or access funds in any way? It's important to understand how smart contracts are managed to ensure the safety of your funds.
- 2.Depeg & Default Risk: Poor protocol design can lead to defaults and bad debt. Stablecoin protocols should have mechanisms in place to liquidate collateral before it becomes worthless, especially if the collateral ratio falls below 100%.
- 3.Collateral Risk: Stablecoin protocols that rely solely on their own native token or low-liquidity altcoins as collateral are considered high-risk. This can lead to a death spiral and difficulty in selling non-liquid tokens, resulting in a loss of collateral.
- 4.Smart Contract Risk: Hacks are unfortunately common in DeFi and audits don't always prevent them. It's important to consider a project's use of multiple, high-quality audit companies as a good sign of their commitment to security. However, even a long-standing protocol doesn't guarantee safety.
It is important to note that while these risks should be taken into consideration, they are not exhaustive and other risks may also exist. It is also recommended to conduct thorough research from experts, such as the Llama risk team, to fully understand the risks associated with stablecoin pools. Additionally, it is important to regularly monitor the chosen stablecoin pool to ensure it is still balanced and profitable.