How Does Wasabi Work?

Derivatives|Risk C+|5 mechanisms|4 interactions

Wasabi is a leverage trading protocol enabling long and short positions on long-tail crypto assets including memecoins and NFTs, using physically-settled perpetual contracts backed by ETH-ERC20 LP vaults. With $18M TVL, its C+ grade reflects the novel application of leveraged derivatives to highly volatile assets, creating risks that exceed typical perp DEX exposure.

TVL

$2M

Sector

Derivatives

Risk Grade

C+

Value Grade

D

Core Mechanisms

4.1.5

Novel

Physically-settled perpetual contracts for long-tail crypto assets backed by ETH-ERC20 LP vaults

Novel: physically-settled perps on long-tail assets

6.3.4

ETH-ERC20 LP vaults as counterparty with OI limited by vault deposits

Vault-as-counterparty model

2.3.3

Insurance fund from trading fees to cover extreme losses

Standard insurance fund

2.1.2

Novel

Dynamic fee allocation adjusting insurance contribution based on market polarization

Novel: adaptive insurance fund contribution rate

6.4.2

DEX TWAP and spot price aggregation for long-tail asset pricing across memecoin and NFT markets

Standard price aggregation but applied to unusually illiquid long-tail assets, increasing oracle manipulation risk

How the Pieces Interact

Long-tail asset perps↔LP vault as counterpartyHigh

Memecoins can experience 90%+ price swings. LP vaults face extreme directional risk.

Physically-settled positions↔Long-tail asset liquidityHigh

Physical settlement requires holding inventory. For illiquid memecoins, large positions cause significant market impact.

Insurance fund↔Tail-risk eventsMedium

Insurance fund may be insufficient for memecoin rug pulls or NFT crashes.

Price discovery on long-tail assets↔Oracle reliabilityMedium

Thin order books make oracle prices for long-tail assets more easily manipulated.

What Could Go Wrong

  1. Asset-backed perps on long-tail assets — Wasabi enables leveraged trading on memecoins and NFTs, assets with extreme volatility and thin liquidity.
  2. LP vault as counterparty — ETH-ERC20 LP vaults act as counterparty to all trades. In trending markets for volatile assets, LPs can face significant losses.
  3. Insurance fund adequacy — may be insufficient for tail-risk events common in memecoin and NFT markets.
  4. Physically-settled perps complexity — requires holding actual assets, creating inventory management risk.

Memecoin Rug Pull Depleting LP Vault

Moderate

Trigger: A memecoin listed on Wasabi experiences 95%+ crash while significant short positions are open

  1. 1.Memecoin collapses 95% as developer drains liquidity — Short positions massively profitable, claiming from LP vault
  2. 2.LP vault pays out short position profits — Vault reserves deplete
  3. 3.Insurance fund insufficient to cover gap — LP depositors face socialized losses
  4. 4.Confidence in Wasabi LP vaults declines — Protocol liquidity contracts across all markets
See all 2 collapse scenarios in the full risk report →

Risk Profile at a Glance

Mechanism Novelty6/15
Interaction Severity8/20
Oracle Surface5/10
Documentation Gaps4/10
Track Record6/15
Scale Exposure0/10
Regulatory Risk5/10
Vitality Risk6/10
C+

Overall: C+ (40/100)

Lower score = safer

More on Wasabi

Is Wasabi Safe?

Safety analysis

Is Wasabi a Good Investment?

Value analysis

Full Risk Report

All mechanisms & interactions

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