What are the risks of Stacking STX using Stacking DAO?
Stacking DAO allows liquidity providers to generate STX yield. Yield is generated through taking risk. The aim of this section is to give an overview of risks associated with depositing STX in Stacking DAO.
1. Smart contract risk
When a user deposits STX, the STX is held in the StackingDAO reserve contract and locked in Stacks consensus from there. STX that's locked in Stacks consensus is no longer available for withdrawal.
Hence, STX that's locked in Stacks consensus cannot be accessed during a hypothetical exploit. This makes StackingDAO more secure than other smart contract based DeFi applications that have funds available for withdrawal at all times (i.e. AMMs or lending protocols).
STX is only held in the Stacking DAO reserve contract when:
STX is waiting to be stacked in the next cycle
STX is pending withdrawal for this cycle
STX rewards have been added to the contracts (after swapping rewarded BTC->STX)
All other STX is locked in PoX and can't be withdrawn in the event of an exploit.
Stacking DAO is committed to further mitigating smart contract risk, by:
Comprehensive smart contract audits, the contracts were successfully audited by Coinfabrik in November 2023 (see audit report here: https://coinfabrik.b-cdn.net/wp-content/uploads/2023/12/Stacking-DAO-Audit-2023-11.pdf)
Upgradable contracts for the initial stage post launch, to ensure swift response times
A bug bounty program in collaboration with Immunefi is live: https://immunefi.com/bounty/stackingdao/
2. Proof-of Transfer (PoX) risk
Stacking DAO locks STX in Proof-of-Transfer to generate stacking yield. Funds would be at risk from potential issues in Proof-of-Transfer, the consensus mechanism of the Stacks blockchain. Since the Stacks launch in January 2021, no such issues have occurred.
3. BTC rewards swaps
This risk only applies to the Stacking rewards (i.e. the APY of the protocol), not the locked STX.
BTC rewards from stacking STX are directed to a BTC address managed by Stacking DAO. Each cycle, the BTC is swapped to STX and deposited into the Stacking DAO reserve contract. To swap BTC rewards into STX, Stacking DAO relies on external swap services that could have issues outside of Stacking DAOs control. Stacking DAO is looking at ways to automate the BTC --> STX swap in the future.
4. Stacks 51% attack
For completeness, funds are at risk if the Stacks blockchain were to get exploited.
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