Risk Management

Cogito Finance prioritizes risk management and transparency. Investors are provided with comprehensive risk disclosures, ensuring they understand the potential risks associated with each investment product.

Smart Contract Risk

Smart contracts are a new form of financial settlement technology that operates on blockchain platforms. While they offer transparency and efficiency, their code can be vulnerable to hacks and exploits. With Cogito Finance, the Vault smart contracts are built upon well-established code standards that have been battle-tested and widely adopted. However, no smart contract is entirely immune to security vulnerabilities. Cogito encourages investors to conduct thorough due diligence and understand the underlying technology before investing.

Interest Rate Risk

Investing in the fund vault exposes investors to interest rate risk. If interest rates rise, the value of the vault’s portfolio and the fund token’s exchange rate may generally decline. Conversely, if interest rates decrease, the portfolio value and token exchange rate may rise. The Cogito Finance mitigates this risk by offering a target weighted-average maturity of 3 to 6 months for the TFUND portfolio and a green bond index fund with a shorter maturity for GFUND. This approach aims to reduce the sensitivity of the portfolio to fluctuations in interest rates.

Credit Risk

The vault invests in fixed-income securities, which are backed by the “full faith and credit” of the issuer, such as U.S. Treasury Bills where the credit risk lies with the U.S. Federal Government. There is a certain level of credit risk associated with the issuer, e.g. If the credit risk of the U.S. government were to rise, it could impact the volatility of the vault’s portfolio value and, consequently, the fund token’s exchange rate. Investors should be aware of this inherent risk when considering investments.

Liquidity Risk

During periods of heightened volatility in the fixed-income market or during large redemption requests, investors may face market liquidity risk. In such scenarios, the Vault may be forced to sell its bond holdings below the mark-to-market price to meet redemptions, potentially impacting the portfolio’s overall value. To mitigate the impact of such price volatility, funds will diversify their holdings across different maturities. Additionally, the fund will secure credit lines from market makers to accommodate redemptions without causing massive sell-offs.