Risks

Using Perena, like any DeFi system, involves inherent risks that users should understand before participating. While we outline key risks below, this list is not exhaustive given the dynamic nature of DeFi. We regularly update this documentation to address emerging threats and developments in the risk landscape.

Technical Risks

Smart Contract Risk

Smart contracts form the foundation of blockchain applications. While designed for security, these self-executing programs can present several risks:

  • Potential vulnerabilities despite security measures

  • Integration risks with multiple protocols and stablecoins

  • Possible exploitation leading to loss of funds

Transaction Immutability

  • All blockchain transactions are permanent and cannot be reversed

  • Errors in transactions cannot be undone

  • Users must verify all transaction details before confirmation

Economic Risks

Stablecoin De-peg Risk

The protocol's exposure to stablecoin stability presents significant risks:

  • Stablecoins may lose their peg to reference assets

  • Permanent de-pegging can lead to proportional losses for liquidity providers

Protection Features

  • Hub-and-spoke model with USD* isolates de-peg risk

  • Configurable asset weights of pools limits exposure

  • Example: In a pool with 45% USDC / 35% USDT / 20% PYUSD composition:

    • If PYUSD de-pegs to $0.50, LP value could decrease to 90% of original value

Price Impact & slippage

  • Larger trades cause bigger price impact

  • Users can set slippage tolerance in the UI

  • Bounded liquidity helps minimizing price impact

Impermanent Loss

Specific to liquidity providers:

  • Results from asset price divergence within pools

  • Lower risk in stableswap pools compared to volatile asset pools

  • Mitigated by:

    • Concentrated liquidity design

    • Trading fees potentially offsetting losses

    • Open-market arbitrage during price jumps

Regulatory Risk

  • Evolving regulatory frameworks for blockchain and DeFi

  • Uncertain legal obligations and compliance requirements

  • Potential impact of regulatory changes on protocol operations

  • Jurisdictional variations in regulatory treatment

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