Cruize v2


This section outlines the risks underlying the Cruize protocol.
Cruize is an experimental protocol and users must be aware of all the risks involved. Cruize hedges a user's volatile digital asset with the integrated use of a well-tested and simulated hedging mechanism. Cruize interacts with AAVE and dYdX to offer a hedging solution. Below are the risks involved with each working engine at Cruize:

Trading Risks

The biggest risk associated with the hedge is losing money on the short trade and hence increasing the costs of protecting the assets. While such risks aren't associated with trending markets, they are present in lateral or sideways markets which add noise to the price movements and increase the redundancy of transactions.
Cruize uses the EMA to significantly filter market noise and reduce the number of transactions associated with sideways markets.

Integrations Risk

Handling positions

The Cruize backend service, which we call Trident, runs a task every 1 minute to make sure an appropriate-sized short position is opened on dYdX. If the position is unable to be opened or closed on time, due to the dYdX API downtime, we run a risk of not capturing the required profit to enforce the payoff associated with hedged tokens.

Liquidations risk

Cruize deposits a portion of the user's deposited assets in AAVE and uses debt to collateralize short positions. During unfavorable market conditions, if Cruize is unable to repay the loan before the asset price drops below the LTV on AAVE, the assets will be liquidated. Due to API downtime, it is possible that the position on dYdX is unable to be closed on time in rising markets leading to liquidation risks. We run a risk of not reaccessing the original USDC deposit + profits on time to avoid liquidation on AAVE.
The protocol uses wide safety buffers while managing the positions to ensure the collateral ratios are always within safe thresholds.

Withdrawal delays

Fast withdrawal Delay

In periods of high dYdX fast withdrawal pool utilization (e.g. 90%+), user's may be unable to use the fast withdrawal from Cruize after the cooldown period. For example, if there is $1,000,000 in the dYdX pool and one trader withdraws their fund worth $1,000,000 then Cruize users will need to wait until the liquidity pool fills again.
To counter this, Cruize will build its own liquidity pool for native fast withdrawals within the protocol.

Slow withdrawal Delay

Slow withdrawals on dYdX happen on the chain and must wait for a Layer 2 block to be mined before they are processed. Layer 2 blocks are mined roughly once every 10 hours, though this could be more or less frequent (up to 20 hours) based on network conditions. In theory, the longest wait time can be up to 20-24 hours

Oracle Risks

Cruize fetches the latest asset price according to the following methodology:
  • A permissionless keeper bot calls the contracts to fetch the most recent Chainlink price for an asset.
  • The Chainlink reported price is then used to settle the asset market price.
If the keeper bot fails to promptly call the Chainlink oracle after expiry, the asset market price may be settled at a delayed price. In the event of a major outage in the Chainlink node, it is possible that the asset market price may differ greatly from the price on the specific expiry.
Cruize updates the price floor oracles at specific intervals. Failing to do so on time will result in an incorrect price floor assigned to some users which could lead to either of the 2 scenarios:
  1. 1.
    Losses incurred increase beyond the price floor.
  2. 2.
    The user is hedged more than what was promised.
Cruize will use an aggregated data source combining various price oracles for fetching price data to prevent central points of failure.