MDLR risks
What can go wrong
Set out plainly, including the risks that are specific to the testnet. Where a risk is mitigated, the mitigation is described; none of them is eliminated.
The testnet reserve is not gold
The testnet reserve is almost entirely MockXAU, a token the issuer mints and that nothing backs. The reserve figures on this site show the mechanism working; they do not show that gold is held.
The hedge can drift or be closed
The dollar peg depends on a short gold position offsetting the gold. On testnet the hedge is open, a short PAXG perpetual on Pactol, and each epoch's statement shows its size beside the gold. Between rebalances the two can drift apart. If the position were closed, liquidated or auto-deleveraged, the reserve's dollar value would move with gold until the hedge was restored.
The hedge is on a related venue
The testnet hedge is on Pactol, a venue in the same group as the issuer, margined in testnet USDC. A hedge on a related venue is exposed to that venue's solvency, to a halt by its operator, and to auto-deleveraging, which can close a profitable position such as the hedge when a loss cannot otherwise be covered. If a group company holds the long side, the group's gold exposure is not hedged at all; the share held by third parties is to be measured and disclosed. The policy limits the hedge to a share of the venue's open interest, 20% by default: a breach raises an alert and limits how much further minting is recommended; it never reduces the hedge.
The mainnet hedge is not decided
No venue outside the group accepts gold as margin, so a mainnet hedge cannot be both free of USDC and on an unaffiliated venue. Three options are open, and the choice is the issuer's: a capped stablecoin margin sleeve on outside venues, disclosed and counted as issuer capital, not as reserve; gold futures or forwards with a bullion bank or an exchange, which carry no funding; or Pactol alone, with a lower supply cap and a higher target ratio.
Funding costs
A short perpetual pays funding when shorts pay longs, and the buffer absorbs it. Negative funding is never answered by reducing the hedge, which would leave the reserve long gold against dollar liabilities. The responses are to pause minting, raise fees, shrink supply, or move the hedge to another instrument such as gold futures or forwards. Under the issuer's policy, hedge income stays in the reserve until the ratio is above 1.12, so good months build the cushion that bad months draw on.
The reserve can fall below supply
If losses exceed the buffer, the collateral ratio falls below 1.00. Below 1.00, each redemption is paid its pro rata share: the amount after the fee times the ratio, never more than one dollar per MDLR, so no holder gains by leaving first. The issuer's policy: below 1.02 for 24 hours, recapitalise to 1.08 within 72 hours or begin an orderly wind-down; below 1.00, a public notice and a capital call at once. A policy depends on the issuer having the capital; it is not a guarantee.
Oracle
The price is the median of several sources, used only when at least two are fresh and agree within 1.5%. If they go stale or disagree, minting and redemption stop until a price returns. A wrong but consistent price across sources would misprice mints and redemptions. Sources on testnet include venue prices for PAXG and XAUT; a licensed reference price (the LBMA Gold Price) is not yet used.
Redemption limits
Redemptions are capped per 24-hour epoch. In a rush to redeem, a holder may have to wait for a later epoch.
Smart contracts
The contracts may contain errors. They have been tested and statically analysed, but not yet audited by an independent firm. The token cannot be upgraded, so an error in it cannot be fixed in place; the controller can be upgraded, through the timelock.
Governance keys
Parameters and upgrades are proposed by keys the issuer controls, through a timelock that shows each change before it runs (1 hour on testnet). A compromised proposer key could queue a harmful change; the guardian can cancel it during the delay. On mainnet the proposer is planned to be a multisignature account and the delay 7 days.
The network
Midas Chain testnet is a test network with a single operator. It may halt, be reorganised or be reset, and its explorer, RPC and API may be unavailable.
Documents
Epoch statements are stored in a single public blob container. The hash on chain proves a file's integrity but not its availability. IPFS pinning and a permanent Arweave copy are planned before mainnet.
Regulation
MDLR is not a licensed stablecoin and, as designed, cannot become one in any regime reviewed (the United States, the European Union, Switzerland, the United Arab Emirates, Hong Kong and Singapore): none accepts gold and a hedge as a stablecoin reserve. It is planned as an offshore synthetic dollar, issued from outside Singapore, the United States and the European Union, and kept out of the United States, the European Union, Hong Kong and the United Arab Emirates, whose rules could reach it; the UAE bans "algorithmic stablecoins" under a definition wide enough to need counsel's view. In Singapore it would not be marketed to retail customers, and MAS's proposals of September 2026 could change how Singapore treats gold-referenced tokens. Japan has not been assessed. The no-freeze design may not be accepted by every regulator or trading venue; that is the first open legal question. Nothing here has been reviewed by counsel.
Gold custody (from mainnet)
A limited mainnet is planned to hold PAXG or XAUT, gold tokens from other issuers, who can freeze addresses: a freeze of the reserve's address would strand its gold until lifted. The reserve is planned to move to MGLD, a token for allocated bars held on trust in a vault, only after two clean monthly attestations of that bar pool. A vault or custodian failure, or a custodian bound by its own jurisdiction's law, could delay or reduce what the reserve can deliver. The vault operator is not yet chosen.
This document is a draft. It has not been reviewed by counsel, it has no effective date, and it does not create any right or obligation. Items marked TBD are facts that have not been settled. It describes a testnet token that has no value.
Nothing on these pages is an offer, a solicitation or a recommendation to buy, sell or hold any asset, in any jurisdiction. Test MDLR is not sold and has no value.