Asset Risk in CDP Vault

Below is an overview of the primary risks associated with using the CDP Vault. While the protocol offers an efficient way to collateralize crypto assets and mint USDOX, users should carefully consider the following factors.

Market Risk

Market risk stems from the inherent volatility in cryptocurrency prices. In the Zeebu CDP Vault, a significant drop in the value of a collateral asset—such as wBTC, wETH, or liquidity pool tokens—can quickly render a position undercollateralized. This can trigger liquidations to maintain overall system stability. Additionally, if market depth for these collateral tokens is insufficient, trades may experience substantial slippage when liquidators sell collateral, potentially increasing losses. Users should remain aware that correlated price movements across multiple assets can exacerbate market downturns, leading to sudden liquidations and heightened risk.

Technology Risk

As a blockchain-based protocol, the CDP Vault relies heavily on smart contracts, oracles, and integrations with external DeFi platforms. Even with rigorous audits, unforeseen vulnerabilities in smart contract code can lead to exploits or unexpected losses. The system also depends on accurate price feeds—sourced from Chainlink—to determine collateral values. Any latency, outage, or manipulation of these oracles could misprice collateral assets, causing premature or insufficient liquidations. Furthermore, because the Vault may integrate with other DeFi services (such as liquidity provision and staking contracts), technical issues or failures in these services can introduce additional risk.

Collateral & Liquidation

When users borrow against their collateral in the Zeebu CDP Vault, they must maintain specific collateralization ratios. If these ratios fall below protocol requirements due to market volatility, the collateral can be liquidated to repay the USDOX stablecoin. While automated liquidators typically act promptly, network congestion or insufficient liquidator participation could delay or hinder the process. This inefficiency may lead to partial or failed liquidations and can create “bad debt” for the protocol in extreme scenarios.

Stablecoin Peg Risk

USDOX is designed to maintain a stable value, but it relies on sufficient collateral backing and liquidity in markets. If collateral tokens in the Vault experience rapid price declines, USDOX could become undercollateralized and drift from its target price. Additionally, limited market depth for USDOX itself could cause the stablecoin to deviate from the peg, especially during periods of market stress.