SECURITY & RISK
Audits and Testing
Harmonix has undergone rigorous audits by Zenith, Verichains and Shieldify to ensure its smart contracts are secure and robust against vulnerabilities.
Security extends beyond Harmonix’s own contracts. Integrated external protocols, DEXs, lending platforms, and other partners, are carefully vetted to minimize risk exposure, working only with verified and reputable projects.
Risks & How Harmonix Manages Them
1) Delta-Neutral
Negative funding rate
Risk: In unfavorable market phases, the funding rate on tokens deployed by the vault can turn negative, causing short-term loss. Historically, BTC/ETH funding can fluctuate ~5–10% per year, and HYPE can be higher.
Harmonix mitigation: Maintain flexible position sizing, keep tight delta-neutral exposure, and adjust re-hedge frequency as funding shifts; rebalance allocations across markets/venues to reduce time under negative funding.
Spot–Perpetual spread & slippage
Risk: Price differences between spot and perpetual and slippage on entries/exits can create short-term unrealized PnL, especially during high volatility.
Harmonix mitigation: Optimize entry/exit (deployment & unwind), use smart order routing to reduce slippage; accept some temporary PnL and hold positions long enough to self-balance as conditions normalize.
Liquidation risk
Risk: Any leveraged position can face liquidation during sharp price moves.
Harmonix mitigation: Rebalancing at safety thresholds to proactively cut risk before hitting the liquidation price; enforce leverage limits and monitor health metrics in real time.
2) Looped Yield (Leverage-and-Borrow)
Short-term Borrow APY spike
Risk: When market liquidity tightens, Borrow APY can spike, reducing or turning strategy PnL negative.
Harmonix mitigation: Maintain low–moderate leverage to balance risk/return; actively manage positions to de-risk or reallocate when borrowing costs rise abnormally.
Liquidation risk
Risk: Supply–borrow–loop structures inherently face liquidation risk.
Harmonix mitigation: Set appropriate leverage, run automation jobs for continuous monitoring and early action; control oracle risk by using vetted oracles and cross-checks to limit mispricing.
3) Pendle Fixed Yield (PT)
Impermanent loss on early exit before maturity
Risk: PT tokens deliver fixed yield, but exiting before maturity can incur impermanent loss versus holding to term.
Harmonix mitigation: Right-size PT allocation in each vault to minimize early exits; prefer tenors aligned with vault liquidity needs to avoid realizing IL.
4) Other risks
Smart contract risk
Risk: Contract bugs can lead to loss of funds.
Harmonix mitigation: Prioritize audits with Shieldify, Verichain, Zenith; integrate Hypernative for real-time monitoring, with the ability to pause vaults and trigger incident response on anomalies.
Partners risk
Risk: As a yield protocol, Harmonix integrates with multiple partners/protocols (venues, lending, perps, yield). Counterparty issues can affect the vault.
Harmonix mitigation: Work with reputable, risk-vetted partners; monitor partner contracts in real time. On risk signals, Hypernative triggers predefined playbooks to avoid/minimize impact.
Risk Matrix
Risk
Probability
Impact
Mitigation Strategy
Smart Contract Vulnerabilities
Low
High
Conduct thorough smart contract audits, integrate only well-audited protocols (AAVE, GMX), audited, using real-time audit from Blocksec's Phalcon, Community bugs rewards, $1m in insurance fund.
Oracle Manipulation
Low
Medium
Use highly secure and decentralized oracles (e.g., Chainlink); monitor oracle data feeds for anomalies.
Market Volatility
Medium
Low
Maintain delta-neutral positioning; establish automated monitoring of health factor and leverage levels; use auto-rebalancing tools if available.
Funding Rate Variability
Low
Medium
Diversify across funding rate opportunities where possible; set limits on dependency on short funding fees to avoid over-reliance on one revenue source.
Counterparty Risk with Third-Party Protocols
Low
Medium
Use only well-established protocols with a strong track record (AAVE, GMX); monitor protocol updates, governance proposals, and partnership developments for any adverse impacts.
Collateralization and Liquidation Risks
Low
Medium
Set a minimum health factor threshold (e.g., 1.5); implement automatic system to avoid liquidation.
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