Risks

SolStrategy is designed to simulate MicroStrategy without the traditional risks of margin liquidations or volatility decay. However, like all financial protocols, it comes with its own set of risks that users should carefully consider before participating. This page outlines the key risks associated with SolStrategy and how they might impact different participants.

SSTR & CNT price volatility

The market premium of SSTR over its net asset value (NAV) could suddenly decrease or disappear. This could leave SSTR holders with sharper short-term losses than SOL if market sentiment shifts. This may reduce the trust in SSTR and the "SSTR trade", especially in extended bear market situations.

Sentiment can also decrease for the CNT token, whose price loosely reflects the trust in the solvency of the protocol. While the protocol will itself buy CNT if the price drops low enough, a depressed CNT price will make it difficult to unwind certain positions, especially looped positions.

Market Liquidity constraints

While the protocol attempts to provide its own liquidity for CNT and SSTR, large orders (especially via looping) can lead to large slippage. Combined with the high expected volatility of SSTR & CNT, this can lead to instances where users lose money simply by moving money throughout the system.

Price manipulation attacks

The pricing and exercising logic of SolStrategy could be manipulated (such as with oracle manipulation), which could lead to the invalid redemption of SSTR that dilutes the SSTR supply. We try to minimize this risk with various safeguards, but the risk remains.

Smart Contract Vulnerabilities

As with any DeFi protocol, the smart contracts could contain bugs or vulnerabilities despite audit efforts. The protocol is undergoing comprehensive security audits before launch and may implement a bug bounty program to encourage responsible vulnerability disclosure.

External Party Risk

SolStrategy uses external protocols like lending protocols and AMMs to put accumulated SOL to work. While these protocols have been battle-tested, SolStrategy cannot vouch for the security of these protocols. Additionally, especially with lending protocols, there is a risk that deposited SOL is suddenly lost in a black swan event. This can lead to a sudden loss in the accumulated SOL that backs the protocol.