> For the complete documentation index, see [llms.txt](https://docs.theo.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.theo.xyz/products/thusd/risks.md).

# Risks

Risks specific to holding thUSD.

Below is a non-exhaustive list of risks that holders of thUSD or sthUSD may face. 

## **Strategy risks**

* **Basis compression / backwardation.** The 3–5% roll yield exists only while the curve is in contango. Since the basis mostly reflects short-term rates, a Fed cutting cycle directly compresses this income, and episodes of backwardation can turn rolling into a cost. Historically, gold trades in contango for 90% of trading days and we roll futures contracts over time, preventing the need to roll a significant number of contracts at once during a period of backwardation.
* **Margin risk on the short leg.** If gold rallies sharply, the short futures leg can deteriorate margin standing. We mitigate this through invariants in our system preventing the account from falling beneath the margin requirements necessary to withstand a 3-sigma single day gold rally. 

## **Counterparty and custody**

* **Lease counterparty  risk.** Theo maintains tight margin requirements and guarantees from lessee and only leases to counterparties with excellent credit profile. Lessees include Fortune 500 financial services firms and fabricators with $1b+ in annual revenue. Despite this, it is still possible that gold is lost. In these cases, we rely on insurance from the lessee, reinsurance on the lessee's existing policies, and title retainment in jurisdictions where possible to ensure we minimize risk of loss. 
* **Custodian risk.** Theo and all counterparties we lease gold to maintain insurance and reinsurance on vaulted physical gold. All onchain backing lives in a Safe multisig with 4/6 signature threshold. Futures positions live in a Fortune 500 FCM.

## **Structural**

* **Smart contract risk.** We get multiple audits by leading audit firms for every contract we deploy into production. Check our [audit page](/security-and-transparency/audits.md) for more information.