Risks

We are committed to full transparency regarding any risks associated with our platform. Our aim is to empower users with the information necessary to make informed decisions. These risks also apply to other lending platforms. If we have missed something, please let us know an we'll add it to the list!

Risk: Faulty Price Oracle

A faulty price oracle can misrepresent token values, potentially leading to severe consequences. For example, an oracle might inaccurately value a token at $1 trillion instead of its true worth of $1. Such discrepancies could enable excessive borrowing based on artificially inflated collateral, posing significant risks to lenders.

Mitigations – To safeguard against this, all protocol changes must pass through a timelock contract, which enforces a mandatory delay between proposal and execution. This delay provides the community with time to review and detect any suspicious activity. All pending changes are fully transparent and publicly accessible during this period.

Additionally, a multi-signature system is in place, requiring approval from multiple trusted parties before any action can proceed. Comprehensive testing will also be conducted to further minimize potential vulnerabilities.

Risk: Bad Debt

Bad debt arises when a borrower’s collateral value drops below the amount they owe, and liquidation does not occur quickly enough to cover the shortfall. This can result from sudden market crashes, oracle delays, or insufficient liquidity in the liquidation market. If unmanaged, bad debt can accumulate and threaten the protocol’s solvency, ultimately putting depositors at risk.

Mitigations – To address this risk, a real-time health monitoring system will be implemented to continuously track borrowers' health factors and proactively flag risky positions. An efficient liquidation mechanism will incentivize third parties to promptly liquidate undercollateralized positions. Additionally, conservative loan-to-value (LTV) ratios and frequent oracle price updates will help ensure that collateral values remain sufficient relative to outstanding debt, reducing the likelihood of bad debt forming without adequate response time.

Risk: Depegged assets

Depegging occurs when a token that is intended to maintain a stable value relative to another asset (like the US dollar) loses its intended parity. This can happen due to exploits in cross-chain bridge protocols, as seen in the Multichain incident. In July 2023, Multichain experienced unauthorized withdrawals exceeding $125 million, leading to significant depegging of assets on the Fantom network. For example, stablecoins such as USDC, which are expected to trade at $1, were observed trading at approximately $0.70 on Fantom following the exploit. Such depegging can erode user trust, disrupt decentralized finance (DeFi) operations, and result in substantial financial losses for stakeholders.

Mitigations – All asset listings will be subject to a community governance vote. This ensures that the decision to list new assets, particularly those with potential bridging or stability concerns, is transparent, carefully evaluated, and collectively agreed upon by the community. This collaborative approach strengthens risk management and aligns asset selection with the long-term safety of the protocol.