USDMD risksEN
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 may not be in place
The dollar peg depends on a short gold position offsetting the gold. On testnet the hedge keeper had not opened a position when this page was written; the reserves page shows the hedge line from the latest epoch. Without the hedge, the reserve's dollar value moves with gold.
The hedge is on a related venue
The testnet hedge is a short PAXG perpetual on Pactol, a venue in the same group as the issuer, margined in testnet USDC. That is allowed only on testnet. A hedge on a related venue is exposed to that venue's solvency; mainnet needs a hedge venue that is not margined in USDC, and a second venue is under consideration.
Funding costs
A short perpetual pays funding when shorts pay longs. Persistent negative funding drains the buffer. The planned response is to reduce the hedge, widen fees or move venue; the length of time the buffer absorbs it before acting is not yet decided.
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
No issuer licence is held. USDMD's design, in which no one can freeze a holder's tokens, may not be accepted by every regulator; that is the first open legal question. Rules on stablecoins differ by country and change. Nothing here has been reviewed by counsel.
Custody (from mainnet)
On mainnet the gold is intended to be held by third-party vaults, allocated and segregated. A custodian failure, or a custodian bound by its own jurisdiction's law, could delay or reduce what the reserve can deliver. Custodians and vault jurisdictions are 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 USDMD is not sold and has no value.