The risks of mUSD

Risk:

Although the probability is extremely low, mUSD does carry theoretical principal risk. This scenario may occur only under extreme conditions—specifically when the underlying token experiences a sharp, continuous price decline, and the LP pool has become fully composed of leveraged positions. In practice, this situation implies that a large number of users are selling their leveraged exposure that is embedded in the underlying token, while relying on mUSD’s zero-slippage minting mechanism to exit.

How are they measured?

A useful metric for assessing the risk of mUSD is the Coverage Ratio, which is the ratio of the total value of Funding Positions to the total value of the Funding Vault for a given market. The higher the Coverage Ratio, the lower the likelihood that the Funding Vault will hold Leveraged Positions, and therefore the lower the risk to mUSD.