Protocol Risks

Interacting with decentralized finance protocols offers many benefits, from earning interest to accessing loans without intermediaries. However, supplying and borrowing on the Evaa Protocol comes with inherent risks, like all financial activities. It's vital for users to be well-informed and aware of these risks to make educated decisions.

Oracle Risk

What is it?

In decentralized finance, oracles play a pivotal role by supplying external data to smart contracts. This data is often about asset prices. However, oracles are susceptible to certain vulnerabilities, such as manipulation or hacking attempts, that could skew the data they provide.

Implications

• If the oracle is compromised or presents incorrect data, it might trigger unintended liquidations or unjustified trades.

• Attackers could try to exploit the oracle by manipulating the data source it relies on. For example, if an oracle pulls price data from a specific exchange, an attacker could manipulate that exchange to skew the oracle's data, affecting DeFi protocols that rely on it.

Mitigation

The Evaa Protocol understands the critical role of accurate price data and its implications in DeFi. We rely on the Red Stone Oracle to combat the oracle risk, aggregating price data from multiple trusted sources. This diversification of data sources ensures that the prices provided are accurate and reliable, thus offering an additional layer of security against potential oracle-based attacks.

100% Utilization Risk

What is it?

If there's a high demand for borrowing a particular asset you've supplied, there's a possibility that all of the supplied assets may be lent out.

Implications

• Suppliers may find themselves unable to withdraw their supplied assets immediately.

• This freeze remains until other users repay their loans or more assets are supplied to the pool.

Mitigation

Diversify your supplied assets and monitor the platform's utilization rates. Avoid putting all your assets in high-demand pools without a diversified strategy.

Liquidation Risk

What is it?

If the value of assets you've provided as collateral falls below a certain threshold (set by the LT or Liquidation threshold), part of the debt might be liquidated.

Implications

• A penalty is applied during liquidation, reducing the overall value of your collateral.

• Given the volatile nature of crypto, prices can drop sharply, leading to unexpected liquidations.

Mitigation

Monitor the value of your collateral regularly and ensure it remains above the necessary thresholds. Consider using stablecoins or less volatile assets for significant amounts.

Smart Contract Risk

What is it?

Smart contracts, while robust, are not immune to potential exploits.

Implications

• Funds could be at risk if an unforeseen vulnerability is exploited.

• The Evaa Protocol advises caution, especially before the official smart contract audits.

Mitigation

Limit the amount of assets you supply, especially before official audits. Stay updated with announcements from the Evaa team regarding security updates.

Asset Risk

What is it?

Crypto assets are volatile and have many associated risks, from market speculation to technological vulnerabilities.

Implications

• Assets can swing in value drastically.

• The performance of a specific market on Evaa depends solely on its contained assets; it's isolated from other markets.

Mitigation

Diversify your asset holdings and stay updated with market news. Consider using assets you understand and are comfortable with.