Skip to main content
Understanding how a system behaves under stress is critical. Here, we analyze historical failure modes from other platforms and explain how Blend’s architecture is specifically designed to prevent them.

​
Scenario 1: The Custodial Collapse (e.g., Celsius, BlockFi, Yield App)

  • Failure Mode: A centralized custodian takes risky, opaque, off-chain bets with user funds. When the bets fail or an exchange counterparty (like FTX) collapses, the platform is insolvent and freezes user withdrawals indefinitely.
  • Blend’s Mitigation: Self-Custody in 1:1 Safes. This entire category of risk is impossible in Blend.
    1. No Custodian: Blend never takes custody of your assets. They remain in your personal Gnosis Safe.
    2. No Opaque Bets: All strategies are transparent, on-chain, and governed by smart contracts.
    3. No Counterparty Risk: There is no off-chain manager or single exchange holding assets. You can verify all positions on-chain at any time.

​
Scenario 2: The Algorithmic Contagion (e.g., Abracadabra’s UST Degenbox)

  • Failure Mode: A protocol allows users to create highly-leveraged loops on a fragile or experimental asset (like an algorithmic stablecoin). When that asset fails, the collateral value plummets, causing a cascade of liquidations and de-pegging the protocol’s own stablecoin.
  • Blend’s Mitigation: Transparent, Delta-Neutral Strategy & Proactive Derisking.
    1. No Algorithmic Flywheels: Blend’s strategies focus on robust, well-established yield sources like LST staking spreads, not experimental assets.
    2. Correlation Checks: The system actively monitors the price correlation required for delta-neutral strategies to function. A de-pegging event would be a primary trigger for derisking.
    3. Automated Unwinding: If a strategy’s net yield turns negative (e.g., due to soaring borrow costs in a panic), the engine is pre-programmed to automatically unwind the position. It doesn’t wait for external liquidators to clean up a mess.

​
Scenario 3: The Yield Aggregator “Slow Bleed” (e.g., YO Protocol, Giddy)

  • Failure Mode: An aggregator charges fees or relies on token incentives while providing relatively simple, unleveraged yields. In competitive markets, their net APY struggles to outperform direct investment, and the platform’s token value bleeds out, reducing incentives and causing a slow decline in usage.
  • Blend’s Mitigation: Capital-Efficient Execution & Aligned Revenue Model.
    1. Leveraged, Not Just Aggregated: Blend doesn’t just find the best yield; it amplifies it using safe, delta-neutral leverage via flash loans. This allows it to generate a competitive APY that is difficult to replicate manually.
    2. Gas & Cost Optimization: By batching transactions and using flash loans, Blend’s execution is highly efficient, minimizing the overhead that can eat into net yields.
    3. Performance Fee Model: Blend’s revenue is a direct percentage of the yield it actually generates for you. This aligns incentives perfectly: Blend only succeeds if you do. There is no reliance on a speculative token or VC subsidies to sustain operations.

​
Scenario 4: The Cross-Chain Bridge Failure

  • Failure Mode: A cross-chain bridge used to move assets is exploited or halted, temporarily trapping funds on a secondary chain and creating an “insolvency” event where assets on the primary chain cannot immediately cover all user claims.
  • Blend’s Mitigation: Direct Access to Chain-Specific Safes.
    1. Self-Custody on Each Chain: Your funds are held in your own Safe on each chain. If a bridge fails, you can still directly access and withdraw your assets on each chain independently.
    2. No Bridge Dependency: Unlike other protocols where bridge failures can trap all user funds, your capital is never locked behind a bridge. You maintain full control of your assets on every chain where you have positions.
    3. Clear Asset Tracking: Because custody is never pooled and is always tracked on a per-Safe basis, the exact amount of assets on each chain is always known. There is no co-mingling that could lead to a bank-run scenario based on uncertainty.

​
Scenario 5: The Underlying Protocol Exploit

  • Failure Mode: A protocol that Blend builds on top of (e.g., a lending market or DEX) is exploited, hacked, or otherwise drained of funds.
  • Blend’s Mitigation: Strategy Diversification & Curation.
    1. Compartmentalized Exposure: Your capital is never fully exposed to a single strategy or protocol. In the event of an exploit, only the proportion of your capital allocated to that specific strategy would be impacted.
    2. Thorough Vetting: Blend’s strategy and curation team thoroughly vets all yield opportunities and underlying protocols before integrating them. This reduces the risk of deploying capital into unaudited or insecure contracts.
    3. Risk-Adjusted Allocation: By diversifying across multiple, well-vetted venues, Blend caps downside risk and reduces the impact of any single point of failure.
⌘I