Risk

Risk Dynamics

Redemption and Risk Dynamics

Instant Liquidity & Redemption

usdGG is always redeemable 1:1 for USDC due to a protocol rule: each vault retains 25% of its capital in reserve. LPs can typically withdraw instantly without delays or fees. The remaining 75% is deployed for swaps, and if usage pushes reserves toward the 25% floor, swaps or withdrawals automatically trigger rebalancing.

In rare cases (e.g. mass redemptions or one-way flows), the protocol pauses swaps and routes liquidity from other chains to restore balance. This may cause brief withdrawal delays, but never a freeze—mimicking centralized exchange liquidity with decentralized infrastructure.

Tradeoff: Yield is capped by the idle 25%, but this guarantees LPs can always exit, avoiding "trapped capital" risk.

Behavior Under Stress

If one vault faces major outflows, its reserve may deplete. The system rebalances by bridging funds from other chains. Worst-case delay is the time for a cross-chain transfer—typically seconds to minutes on modern bridges.

Even during outflows, usdGG remains fully backed across all vaults. A governance module can pause activity in critical failure scenarios, though this is a last resort.

Net Effect: Risk is auto-managed. High volume = more fees; low volume = reserves stay untouched. In both cases, peg and liquidity remain intact.

Yield "Cliffs"

usdGG yield can drop to zero if bridge volume dries up, but cannot go negative—fees are never negative, and no rebasing or debt mechanics exist. LPs only earn or exit flat.

Tail Risks

Core risks are smart contract and bridge failures. An exploit could drain vaults. These are low-probability but real, given DeFi's $2B+ history of bridge hacks. usdGG also inherits USDC's risks—custody, regulatory exposure, and banking instability (e.g. the 2023 SVB-driven depeg).

Summary: usdGG adds protocol risk (contracts + bridges) on top of USDC's baseline risks. In exchange, LPs earn elevated yield.