Risk overview

To ensure the success and reliability of the Taofu architecture, risks must be correctly managed. Below, key risks and mitigating solutions are outlined.

EVM risk

As a larger, well-established network, operating on Ethereum carries minimal risk, as its existing stability and security is quite robust. Our smart contracts are also audited by multiple auditors in order to identify potential risks and insecurities.

Bittensor risk

Because Taofu’s functionality is so intimately involved with the Bittensor network, our operations rely on its stability and value. For example, if Bittensor experiences a chain halt, it may have rippling effects on the value of sTAO and TAOFU.

Partner risk

While the arbitrage partners are KYCed, it is still important to manage the risk that they are compromised or that they cause regulatory issues. To mitigate this risk we are working together with third party providers that maintain lists of on-chain addresses that are tagged as problematic due to reasons like sanctions, being hacked, being a known on-chain exploiter, and more. These checks are done both off-chain and on-chain through the veto committee.

Custody risk

Taofu V1 goes live with a layered cold/hot wallet system secured by a multisig procedure. TAO in cold storage requires the co-signing of at least three separate entities, including Taofu itself and two external signers. Over time Taofu aims to migrate the cold storage solution to an institutional custody provider. Even though these entities have the highest security available, they still do pose centralisation risk.

Yield risk

Estimated yield is dependent on both the performance of Bittensor and of the Taofu Protocol. Validators need to perform well consistently to be competitive in order to maintain expected staking returns.

Arbitrage risk

Taofu relies on market makers to maintain the sTAO to TAO peg promptly. If they are slow, there may be a temporary and marginal depeg.

Key management risk

Proper decentralization prevents any aspect of operation from relying on a single person or persons’ availability and commitment. Taofu’s governance and operations procedures minimize opportunities for single points of failure.