> For the complete documentation index, see [llms.txt](https://docs.axis.to/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.axis.to/risk/risk-overview.md). # Risk Overview Axis combines smart contracts with offchain custody, operators, trading venues, and strategy execution. No single control removes all of these dependencies, and losses or delays are possible. {% hint style="danger" %} USDx can trade below its target, redemption can be delayed or unavailable, strategy activity can lose money, and smart contracts or operational systems can fail. Do not treat USDx or sUSDx as cash, an insured deposit, or a guaranteed-return product. {% endhint %} ## Where the yield comes from sUSDx earns yield from Axis's structural edge in cross-venue and cross-asset fragmentation, a durable, market-neutral yield source that does not rely on any single mechanism: the strategy captures spreads between related assets and across venues. Funding is one component (and can be the larger share in a given period); see the Transparency Dashboard for current attribution. That is also where most of the risk sits. Capturing those spreads means holding positions across venues and counterparties, and the market, execution, venue, and custody risks below all flow from that activity. ## Principal risks The risks below are grouped by where they originate. Within each group the first row is the one that matters most. **Counterparty and custody.** Where Axis depends on someone else holding or honouring something. This is the largest category of risk in the design, because the backing does not stay onchain. | Risk | What can happen | Who is exposed | | -------------------------- | ---------------------------------------------------------------------------------------------------- | -------------------------------------------- | | **Venue and counterparty** | A venue or counterparty can halt, default, restrict withdrawals, or fail operationally | Assets or positions held there | | **Custody** | Assets held outside the contracts can be lost, frozen, delayed, or mismanaged | USDx backing and operations | | **Fund and issuer** | A money-market fund, issuer, or instrument can lose value, restrict liquidity, or fail operationally | Collateral-yield assets and strategy capital | **Market and execution.** Where the strategy itself can lose money. | Risk | What can happen | Who is exposed | | -------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------ | | **Market and basis** | Related assets can diverge instead of converge; a spread can widen and a hedge can be imperfect | Strategy capital and, ultimately, protocol users | | **Execution** | Slippage, partial fills, latency, or failed orders can reduce or reverse an expected spread | Strategy capital | | **Collateral** | A supported asset can lose value or liquidity | Minting, redemption, and backing quality | **Liquidity and exit.** Where you may not be able to get out at the price or on the timeline you expect. | Risk | What can happen | Who is exposed | | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------- | | **Liquidity and depeg** | USDx can trade away from $1; exits may be expensive, limited, or delayed | USDx and sUSDx holders | | **Redemption delay** | sUSDx exits are asynchronous: a request goes through a 7-day cooldown, then servicing, then a claim, and the reserved assets stop earning vault rewards once redemption is requested | sUSDx holders | **Protocol and administration.** Where the system itself, or the people who control it, can fail. | Risk | What can happen | Who is exposed | | ---------------------- | ------------------------------------------------------------------------------ | --------------------------------------------- | | **Admin and operator** | Privileged keys can be compromised, unavailable, or misused | Issuance, redemption, staking, and parameters | | **Smart contract** | A bug, exploit, integration error, or unexpected token behavior can cause loss | Onchain users and protocol assets | **External.** | Risk | What can happen | Who is exposed | | -------------- | ----------------------------------------------------------------- | ----------------------------- | | **Regulatory** | Access, transfers, custody, or venue operations may be restricted | Users and protocol operations | ## Risks compound These risks are not independent. For example, a venue failure can create an unhedged market position, make collateral unavailable, reduce confidence in redemption, and contribute to a USDx discount at the same time. ## USDx and sUSDx have different exposure USDx holders are exposed to the price-stability, collateral, custody, redemption, and operational system. sUSDx holders retain those risks and also depend on the vault, reward funding, and the asynchronous redemption process. ## Controls reduce risk; they do not eliminate it Axis contracts include signature validation, role separation, multi-scope capacity limits, a risk-down emergency pause authority, asynchronous (ERC-7540) redemption with a cooldown, and published audit reports. These measures can constrain specific failures. They cannot guarantee the value or availability of offchain assets, correct trading execution, continuous liquidity, or a fixed return. Axis does not operate a reserve fund. The backing is instead designed to be over-collateralized against a target over-collateralization level, so that drawdowns, negative reserve growth, and reserve contractions are intended to be absorbed by that buffer rather than passed straight through to holders. This is a design intent sized against reserves, not a guarantee; a large enough loss can exceed the buffer. See [How Axis Manages Risk](/risk/risk-management.md). Read [How Axis Manages Risk](/risk/risk-management.md) for the control layers, [Asset Selection](/risk/asset-selection.md) and [Venue & Counterparty Risk](/risk/venue-counterparty-risk.md) for the offchain frameworks, [Custody & Liquidity Risk](/risk/custody-liquidity-risk.md) for asset availability and exit constraints, and [Security Overview](/backing-reserves-and-transparency/security.md) for contract-level details. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.axis.to/risk/risk-overview.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.