Please read this risk statement carefully before using this protocol. Updated on 6/5/2022.
Purpose of document
The purpose of this risks statement (the “Risks Statement”) is to set out important information concerning some of the risks associated with using the Protocol and/or the Features. You should consider the information contained in this document carefully before you decide whether to participate in the Protocol and/or to use the Features. You should also bear in mind the fact that this document cannot provide you with a comprehensive list of the particular risks facing you and does not reflect all of the risks or other factors you should consider before participating in the Protocol and/or using the Features. If you decide to participate in the Protocol and/or use the Features, you must make the decision to do so independently and you should consider seeking advice from independent, qualified advisors.
Risk of claim payout
The nature of the investment is supplying collateral to underwrite DeFi insurance covers, therefore there is a risk that the capital supplied will be used as pay-out in case of eligible claims under the DeFi insurance covers. Due to the diversified nature of the Bright Risk Index, this risk is less than if you were to supply capital on an individual basis, but still the risk of pay-outs under insurance claims is present and this can be significant. Each partner handles this capital supply differently. Some is within a leveraged pool, for other it is individually staked across multiple pools. There is limited data available around the likelihood of a claims payout. However, Bright Union estimates the risk to be in the range of 4-8%.
Risk of weaknesses or exploits in the field of cryptography
With all new technology there is a risk of exploit as a result of an undiscovered bug or loophole in the code. At the date of writing, the Bright Risk Index, has completed its audit by Inspex. This means that the code has been checked by a third-party, and any bugs found have been remediated. This means that there is a significantly lower risk of an exploit taking place which could result in total loss of funds.To read the full audit report, please follow this link https://app.inspex.co/library/bright-union
There is a risk that certain countries may impose regulations banning participation in crypto markets. Bright Union recommends that you stay informed of the rules in your residential/tax jurisdiction. If your jurisdiction changes revokes your ability to participate in crypto markets, it is your responsibility to withdraw your funds and stop participating. A change in regulation could also impact the number of users of the underlying protocols, which may reduce the demand for their coverage.
Risk of lower than expected yield
APY is handled differently for each protocol coverage pool and for each partner (Nexus Mutual, Bridge Mutual and InsurAce). The APY displayed on the app is an annualized historic average based on the realised returns of a rolling 90 day window. Today’s APY is shown when hovering over the ‘i’ on the historic APY card. This number is more volatile and less representative of the returns over the course of a whole year. Bright Union has chosen to display both so that users are more informed about their investment. Returns are a combination of the result of cover being purchased and of inflationary tokenomics. They will vary based on sales of coverage, changes in how the partners calculate the returns, change in premiums and potential reallocation of rewards to stakers (as a result of the partners’ decisions).
market risks/idiosyncratic risks
There are a number of assumptions underpinning the investment strategy of the Bright Risk Index. Firstly, that users will continue to buy coverage against hacks and smart contract failures. As the BRI is providing capital for insuring these risks, there will be limited earnings potential as a BRI investor if the supply outweighs the demand. Bright Union assumes that the market will not be overwhelmed by aggressive, widespread regulation.
volatility and currency risks
Bright Union DAO reduces FX and currency exposure risks by keeping investments in stablecoins (DAI, USDT…) as much as possible (other currencies exposed to are NXM, wNXM, INSUR, BMI). However, even the stablecoins are subject to a certain level of risk if they deviate from their peg. The prices of all the relevant digital assets may go up or down at any time.
Users accept the risk they are only able to withdraw if there is sufficient funds in the withdrawal pool (which has been merged with the deposit pool). The withdrawal pool will be limited to a maximum capacity, because these funds are sitting idle, as opposed to earning rewards. The BRI token has been listed on uniswap. However, at the moment liquidity is limited, meaning that it isn’t possible to trade large sums here yet.
Note that all decentralized protocols are experimental and their use involves a high degree of risk. There are numerous ways they can fail, which can result in a total loss of your capital