Staking Auction AMO Risks

Most notably, while the AMO locks up funds around the epoch boundary to guarantee delegation to bidders, these funds are unavailable for other strategies. Depending on the yield received compared to other strategies, there is a potential for negative opportunity cost. During the lockup period, these funds are also unavailable to defend the peg with the DEX AMO. Consequently, without users willing to acquire OADA under the peg, the open market price may be driven entirely by speculation.

Upon the start of the new epoch, the assets are released and can be utilized for any function, including re-pegging the OADA/ADA stableswap pair. This release of funds can significantly influence market conditions, and oracles that read price feeds from the Splash pool may be affected. Systems not equipped to handle these fluctuations should avoid acquiring leverage on assets trading against OADA or sOADA.

In summary, the lockup of funds around the epoch boundary introduces a period of potential opportunity cost and speculative market behavior. However, the subsequent release of assets at the start of the new epoch restores their availability for various functions, including market stabilization. It is crucial for systems interacting with OADA or sOADA to be prepared for these dynamics to avoid adverse impacts from market volatility.

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