Risks

How to read this page#

UNDO is designed to reduce one risk: paying someone and having no recourse. It does not remove that risk entirely, and it adds risks of its own. This page lists them without ranking them. Read it before you rely on the protocol as a buyer, a seller, an agent operator or a staker.

Protocol risks#

Smart contract risk#

The contracts can contain bugs. Two audits are planned before launch, and none has happened yet. An audit lowers the chance of a serious bug. It does not bring it to zero. The contracts are designed to be non-upgradable, so a bug cannot be patched in place. Funds held in a faulty contract could be lost.

Bond shortfall under leverage#

Leverage means the bond may not cover every lost dispute at once. At 5x, a 1,000 USDC bond can stand behind 5,000 USDC of open exposure. If a seller loses disputes for more than their escrowed balance and bond, there is a shortfall. Until phase 2, a buyer who wins in that situation may not be refunded in full. From phase 2, the Guarantee Pool is planned to cover shortfalls, with the seller carrying a debt. The pool will be limited in size, can be used up, and is subject to legal review.

Arbitration can be wrong#

Arbitrators are stakers, not judges. They can misread evidence. Commit-reveal voting, slashing and one appeal to 7 arbitrators reduce errors. They do not remove them. A buyer with a valid complaint can lose. A seller who delivered can lose.

Arbitrator collusion or low participation#

Random draws make collusion harder, not impossible. If few people stake, the same arbitrators are drawn often, and a small group could coordinate. If drawn arbitrators do not vote, disputes are slower to resolve. Early in the protocol's life, the staker set will be small.

Asset and market risks#

Lending market risk for idle bonds#

Idle bonds are designed to be deployed to lending markets on Arc. Those markets have their own smart contract risk, bad debt risk and liquidity risk. A loss there reduces the bond. A liquidity squeeze there can delay a refund. Yield is variable and can be zero. No return is promised.

Stablecoin and issuer risk#

UNDO uses USDC and EURC. Both depend on their issuer. An issuer can freeze addresses, can face regulatory action, and a stablecoin can lose its peg. UNDO cannot protect against any of this. A refund is paid in the same asset as the payment, at whatever that asset is worth.

Staked $UNDO can be lost#

Staked $UNDO is exposed to slashing, and in phase 2 to the first-loss layer ahead of Guarantee Pool depositors. The token is not launched. See $UNDO token.

Operational risks#

Receipt signing key compromise#

In the Agent lane, the seller signs a receipt for each paid response. Anyone who holds the signing key can sign receipts for responses that were never served, which defeats automatic refunds for those calls. If a seller loses the key, the seller's agents and customers are exposed until the seller stops using it. The reverse also holds: a seller whose signing service fails will refund calls it actually served.

Dependency on Arc#

UNDO runs only on Arc. If Arc halts, slows down, changes its fee model or changes its rules, UNDO is affected. Deadlines such as the 48h seller response and the 72h vote depend on the chain producing blocks. UNDO is an independent project and has no control over Arc.

Legal and project risks#

Legal and regulatory uncertainty#

The legal treatment of on-chain dispute resolution, bonds, staking and pooled backstops differs between countries and is not settled. The Guarantee Pool is subject to legal review and may change, be restricted to some jurisdictions, or not launch. Rules that apply to you may limit whether you can use UNDO.

Arbitration outcomes do not replace consumer law. A buyer keeps the rights the law gives them, and a seller keeps the obligations, whatever the arbitrators decide.

Early-stage project risk#

UNDO is an early-stage project. It may be delayed, may launch with different parameters, or may not launch. The numbers in these docs are planned values. There is no track record yet.

What lowers these risks#

None of these measures removes a risk. Each one is designed to make it smaller.

Related#

• Security
• Refund waterfall
• Legal disclaimer