# Risks

There are always risks associated with any financial system and here we outline the key ones resulting from the DeFi side of the product and our methodologies for mitigating those risks.

<table><thead><tr><th width="141.6666259765625">Risk Type</th><th width="286.3331298828125">Description</th><th width="317.33343505859375">Risk Control</th></tr></thead><tbody><tr><td><em>Backing Assets Risk</em></td><td><p>Risk of loss due to underlying assets losing value. This risk is directly inherited from the risks of the backing assets.<br><br>The risks include:</p><p></p><ul><li>RWA value fluctuation</li><li>Funding strategy risk</li><li>Lending market (Aave, Morpho) hack</li></ul></td><td><ul><li>Strict criteria for an asset / strategy to be included</li><li>Diversification across many asset types with capped risk limit for each</li><li>Extensive due diligence for each asset including discussions with the team</li></ul></td></tr><tr><td><em>Liquidity Risk</em></td><td>Risk that the backing assets lack sufficient liquidity to support redemptions</td><td><ul><li>Require backing assets to have sufficient secondary liquidity to support potential unwinds / redemptions</li><li>Require backing assets to have clear redemption mechanisms and low exit slippage</li></ul></td></tr><tr><td><em>Stablecoin Risk</em></td><td>Risk of loss due to depeg events of the stablecoins held by the protocol, including USDC and USDT and wrapped versions of those</td><td><ul><li>Limit the exposure to any individual stablecoin</li><li>Minting and redemption price fully takes into account the stablecoin values and prevent any potential arbitrage</li></ul></td></tr><tr><td><em>Valuation Risk</em></td><td>The risk that the valuation of the backing assets is inaccurate or unclear, resulting in an inaccurate distribution of returns to stakers</td><td><ul><li>Use reputable oracle providers (Chainlink/Pyth) and ensure that the data feeds reflect a wide range of available market liquidity</li><li>Continuous monitoring of large valuation moves and exit slippage</li></ul></td></tr><tr><td><em>Bridging Risk</em></td><td><p>Malfunctioning of bridging services can cause:</p><ul><li>Inability to move our backing assets across chains to generate returns</li><li>Inability to handle redemptions due to lack of liquidity on redemption chain</li></ul></td><td><ul><li>Integration of multiple bridging providers appropriate for each ecosystem (CCIP, LayerZero, Across, etc.)</li><li>5 day redemption period and ability to reject redemption requests alleviate any short-term liquidity issues</li></ul></td></tr></tbody></table>


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