Risk &
Mitigation Paper

Coinchange is a technology platform that allows users to earn crypto on their holdings by facilitating yield generation through DeFi strategies. Coinchange strategies are automated systems, based on proprietary financial models that rebalance funds in the DeFi ecosystem as per changing market conditions.

This document aims to provide a clearer understanding of Coinchange’s main risk stack and the processes/systems in place to mitigate and manage those risks, mainly cybersecurity risks, crypto related counterparty risks and Earn account strategy risks. For a more comprehensive coverage of Coinchange risks on top of the ones covered here, please refer to our Risk Disclosure document.

Cybersecurity risk is a crucial aspect of Coinchange's Fintech business model. Incidents can occur due to intentional or unintentional events. As technology and computer systems play a significant role in the functioning of our type of business, digital assets and platform services are at risk of operational and information security risks, including but not limited to malware attacks, denial of service attacks, coordinated attacks, and account takeovers by malicious individuals or groups. Such actions can negatively impact the Platform and Services availability.

Below is a list of risk and mitigation processes.

Cyber risk

Definition

Cyberattacks include but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption whether it pertains to Coinchange off-chain elements like server infrastructure or on-chain elements like smart contracts. If the logic of the smart contract is flawed, it could get exploited and give the malicious actors access to funds that it controls. Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial of service attacks on infrastructure.

Cyber security failures or breaches of the third party service providers (including, but not limited to, software providers, cloud services providers, index providers, the administrator and transfer agent) could have a negative impact on digital assets and Coinchange Services.

Internally the platform makes use of admin keys to access data and services. Such keys exist for off-chain (Web 2.0) and on-chain elements (Web 3) at Coinchange, and their management can be the weak link which can lead to exploits and loss of funds. Improper storage, protection and segregation of Web 2.0 and Web 3 private keys can result in malicious attackers (internal actors or external actors) gaining control and halting or stealing funds from the platform.

Migitation

Coinchange has successfully passed penetration tests of its applications and services by third party security firms, hence securing its infrastructure and communication rails across its web and mobile application. Coinchange also successfully passed security audits of its AWS servers.

Bug bounty programs and code analysis tools are used to secure the platform allowing users to have an uninterrupted and secured access to their assets.Regarding the on-chain elements, proxy contracts (type of contracts that Coinchange uses) do not carry any investment logic; they just forward the instructions to other smart contracts preventing control/power escalation.

They also prevent loss of funds since they do not have ownership rights. Finally, Coinchange uses AWS security manager to securely store Web 2.0 and certain Web 3 keys which are encrypted and can only be decrypted by specific contracts.

IT and Downtime

Definition

Coinchange or its Cloud Service providers may periodically conduct maintenance on the Platform which may cause temporary downtime and difficulties accessing the platform, causing delays or cancellation of pending orders and transfers. It may also prevent users from submitting new transactions or modifying existing ones. 

Migitation

Coinchange has implemented redundancy in its infrastructure by utilizing different cloud providers located in various regions to minimize the likelihood of downtime and its impact on the Platform.

Access Risks

Definition

Using mobile and/or web-based trading and earning technologies poses risks, such as latency in prices and rates and connectivity issues (including mobile network usage).

Order prices and Earn rates displayed on the Platform are only indicative and may not reflect the actually executed price or earned rates.The Platform utilizes public communication network circuits for the transmission of messages.

Coinchange shall not be liable for any and all circumstances in which Users experience a delay in price quotation or an inability to transfer or withdraw assets caused by network transmission problems or restrictions or any other problems outside our direct control.Coinchange’s mobile applications may require Users to download and install updates to the application or to their device’s operating system as such updates are made available.

Failure to do so might lead to certain parts of the Services (including trading/Earn account functions) becoming inaccessible to Users until such an update has been successfully downloaded and installed.Coinchange on-chain elements can have specific logic and must use certain functions in different smart contracts on the blockchain.

A change in the address of which smart contract to interact with, and which function to call or wrong configuration of roles and power, can result in delay or in worse case scenario loss of funds. Specifically, when new smart contracts get deployed, malicious actors (internal actors, already having access or external actors, gaining access) could deploy flawed contract logic sending funds to a malicious controlled address resulting in loss of funds. 

Migitation

Coinchange mitigates access risks by using least responsibility schemes for access to systems and data internally. It protects the platform from data leak and power escalation in case of a malicious actor gaining control of an employee's access.

We make use of VPNs for connections to internal services and platforms. Coinchange uses expiring passwords for employee access so that even if such information were to leak, the passwords would not work anyway. Coinchange configuration smart contracts (mentioned above) are verified before deploying on chain and it constrain the execution environment to a specific set of functions. Even if a malicious actor were able to gain access to these contracts, they would not be able to withdraw or send funds to their own address.

This is because the contract’s interaction uses the concept of operator/deployer/beneficiary where funds are secured by multi-sig ownership. It is important to note that this framework represents a universal bytecode execution machine where the bytecode is any strategy-level complex action. On-chain smart contracts are fully auditable and thoroughly tested.

Crypto-related counterparty risk comes from the protocols, the crypto assets and the blockchains (i.e counterparties) Coinchange interacts with. It is important to note that the risks of interacting with DeFi protocols, assets and blockchains as a standalone user are relatively similar to those faced by Coinchange. The main difference is the mitigation processes in place and the expertise of the agent interacting with them. 

Risk list: Coinchange deploys strategies on four blockchains: Ethereum, Binance Smart Chain, Avalanche and Polygon. Coinchange strategies accept and deploy client assets to various DeFi protocols (AAVE v2-3, Uniswap v3, TraderJoe, Pancakeswap, Curve, Venus, BenQi, 1Inch, Pangolin, Lido and Alpaca Finance), where each strategy has an algorithm and a set of currencies that it works with. The strategy is able to convert and deploy the assets, and later return them to the original asset upon withdrawal, mainly: USDT, USDC, DAI, ETH, BTC. To learn more about how we diversify their allocation, read our Asset Allocation Report of December.

Below is a detailed list of the crypto- related counterparty risks that Coinchange carries when interacting with DeFi.

Coinchange strategies are automated systems, based on proprietary financial models that rebalance funds in the DeFi ecosystem as per changing market conditions. As such Coinchange yield products carry cyber risk and crypto related counterparty risk (see sections above).Coinchange earns yield income from trading fees, lending, staking and liquidity mining. This income is often increased using automated leverage.