Operating in the dynamic Web3 space presents unique risks, and at Noon, mitigating these risks are part of our core focus. We have spoken about the many upsides to Noon (link articles here) , however, we are well aware of the risks pertaining to such upsides. Let us dive into how we mitigate risk at Noon.As our protocol matures, we will continuously refine our safeguards to ensure resilience and maintain trust. Our approach to risk management is both comprehensive and forward-thinking, built on years of experience and a deep understanding of the ecosystem.

Market risk

Market risk is the risk of our returns dropping below 0 due to movements in the market. This is a risk we have specifically designed and tested our strategies to be resilient to. All of our delta neutral strategies are designed to succeed across market conditions. And we have run and tested these strategies for years across a wide range of market conditions to ensure their robustness.

Trading and execution risk

Trading and execution risk arises when our trading engine fails or systems malfunction, potentially leading to negative returns. To address this, we have spent nearly a decade refining our trading strategies, stress-testing them against market cycles that include booms, busts, and even "black swan" events. Back-testing under extreme scenarios has consistently demonstrated their robustness, and a redundant real-time monitoring and alert system ensures any unforeseen issues are swiftly identified and resolved.

Counterparty risk

Counterparty risk is another challenge, rooted in the possibility that partners or service providers may fail to meet their obligations. Noon eliminates much of this risk by avoiding direct custody of assets on exchanges. Instead, we use off-exchange settlement services through trusted Web3 custodians, ensuring secure operations. When it comes to tokenized treasury bills, we only hold assets with fully  licensed and regulated brokers to provide maximum security. In addition, our  brokers have taken out redundant insurance coverage, to provide an additional layer of protection.

Negative funding rate and low interest rate environments

As Noon’s initial delta-neutral strategies are funding rate arbitrage and tokenised treasury bills, we of course considered the major challenges to each - namely negative funding rate environments, and low interest rate environments.

Navigating negative funding rate environments, where funding rates turn unfavorable, poses a different kind of challenge. However, our team is well-versed in adapting to such conditions. We can maintain performance in a variety of methods - by inverting our funding position or by reallocating capital into tokenized treasury bills.

We carefully manage risks associated with a prolonged low interest rate environment, which can reduce returns on treasury bill-backed stablecoins. Our diversified strategy ensures we are not overly dependent on a single approach. In such scenarios, we redeploy capital into delta-neutral strategies that remain profitable, safeguarding consistent yield.

Liquidity risk

Liquidity risk is another critical consideration, encompassing the potential difficulty of maintaining adequate liquid reserves to meet withdrawal requests. Over the years, our trading team has developed expertise in managing liquidity under tight time constraints, particularly in executing delta-neutral strategies. To further enhance liquidity management, we collaborate with tokenized treasury bill providers who minimize redemption times, ensuring rapid access to capital when needed.

Smart contract risk

Smart contract risk, involving potential vulnerabilities in Noon’s smart contracts that could compromise user funds, is an ever present  concern in Web3. To mitigate this, we minimize reliance on smart contracts for holding assets, instead entrusting reputable custodians and licensed brokers with this responsibility. When smart contracts are used, they undergo rigorous testing and regular audits by top-tier Web3 security firms. Additionally, funds remain in smart contracts only for brief periods, reducing our attack surface. Any vulnerabilities identified during audits are resolved before deployment.

At Noon, our commitment to continuous improvement upholds everything we do. By adopting a proactive and adaptive approach to risk management, we ensure that our protocol remains secure, resilient, and prepared for the challenges of an evolving Web3 ecosystem. This dedication not only safeguards our platform but also reinforces the trust our users place in us, as we strive to set a standard for risk management in decentralized finance.

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