Risk Management

APACX Protocol is designed to be robust and secure, yet like any innovative system, it faces inherent risks. We proactively address these risks through multiple layers of safeguards and mornitoring.

Smart Contract Risks

Smart contracts are a fundamental component of APACX, but they may carry potential risks due to vulnerabilities in the underlying code. These risks could lead to unintended consequences, such as fund loss or system malfunctions, which may compromise the stability and integrity of the protocol. The dynamic and immutable nature of smart contracts increases the potential impact of any code flaws or exploits.

Mitigation

• Regular Audits: PHT and related smart contracts have undergone initial audits by leading blockchain security firms like SlowMist. Going forward, the protocol will conduct regular audits to ensure continued safety and functionality. These audits help detect and resolve vulnerabilities early, minimizing the risk of exploits.

• Bug Bounty Program: APACX will incentivize community involvement through a bug bounty program, encouraging independent security researchers to identify and report potential vulnerabilities. This crowdsourced approach provides an additional layer of protection.

• Real-Time Monitoring System: In addition, a real-time monitoring system will be introduced to continuously track smart contract performance and detect anomalies as they arise. Automated alerts will notify the team of any irregular activities or code deviations, triggering an immediate investigation and, if necessary, an emergency protocol response.

Market & Black Swan Risks

APACX is exposed to potential risks from sudden market shocks, such as dramatic price crashes of collateral assets or broader financial instability. Such events, often referred to as "black swan" events, are unpredictable but can have severe effects on the protocol’s stability and collateralization. These risks arise from the inherent volatility in markets and the possibility of extreme, unforeseen scenarios.

Mitigation

• Overcollateralization: APACX will maintain high overcollateralization ratios to ensure there is always sufficient collateral backing the system, even during significant market downturns. This reduces the risk of a shortfall in case of extreme price fluctuations.

• Automatic Liquidation Mechanisms: In the event that a vault’s collateral falls below the required threshold, automatic liquidation mechanisms will activate to safeguard the protocol against undercollateralized positions. This helps maintain system stability during volatile market conditions.

• Emergency Shutdown Procedures: In extreme circumstances, such as a severe market crash or system instability, the protocol can activate emergency shutdown procedures to halt operations temporarily. This emergency response ensures that the protocol can pause trading and liquidation processes, preventing further destabilization while a resolution is being developed.

Regulatory & Compliance Risks

The evolving regulatory landscape for blockchain and cryptocurrency presents potential risks to APACX's operation. Changes in laws or the introduction of new regulations could affect the protocol's accessibility, legality, or operational capacity in various jurisdictions. The unpredictability of regulatory developments poses a challenge to maintaining compliance and could impact the protocol's growth and adoption in regulated markets.

Mitigation

• Collaborations with Licensed Partners: To mitigate regulatory risks, APACX works closely with licensed partners, including entities like MoneyBees, a certified Virtual Asset Service Provider (VASP) with MSB registration from the BSP (Bangko Sentral ng Pilipinas) and AMLC (Anti Money Laundering Council). This collaboration ensures compliance with local regulations and helps facilitate the onboarding of users in a compliant manner.

• AML (Anti–Money Laundering) Integration: APACX has implemented KYB (Know Your Business) procedures and partnered with Lukka for KYT (Know Your Transaction) to monitor and verify the legitimacy of transactions, ensuring suspicious activities are promptly flagged and investigated. In addition to these measures, APACX plans to introduce more advanced AML integrations in the future to further enhance security and compliance, ensuring APACX operates in line with global anti-money laundering standards.