Risks

We discuss below key risks associated with using Akita Finance

Risks to Lenders

Loss of Capital:

• ⚠️ Risk: the risk of debt accrued by underwater positions in case liquidators do not liquidate in time during a period of high market volatility

• ℹ️ Mitigation: we have taken a cautious approach in setting key parameters to ensure a large buffer; we also have provided enough incentive to liquidators to call and liquidate applicable positions; hence, we believe this scenario is very unlikely to occur

Timing of Asset Return:

• ⚠️ Risk: delay in getting deposited asset back in case of the pool’s high level of utilization; please note that farmers can borrow the funds as long as they like and there is no fixed term of when the funds must be returned

• ℹ️ Mitigation: we use a triple-slope interest rate to optimize for 90% fund utilization. The steep increase in interest rate beyond the 90% utilization should incentivize more lenders to deposit funds and borrowers to return outstanding loans, bringing the pool back to an optimal level

Risks to Yield Farmers

Impermanent Loss (IL):

• ⚠️ Risk: risk of (impermanent) capital loss from asset rebalancing in the Automated Market Maker ("AMM") pool

• ℹ️ Mitigation: impermanent loss is not unique to Akita Finance; it is common among all yield farming and AMMs; while we currently do not yet have a way to mitigate IL, users can choose to yield farm asset pairs that have high correlations to minimize potential IL. For more information on IL, you can start with this article.

Liquidation:

• ⚠️ Risk: if you open a leverage yield farming position, Akita Finance borrows a base asset for you to farm; you run the risk of being liquidated if price of the borrowed asset appreciates against the farming token pair. Your position will be liquidated when the Debt Ratio (debt / position value) reaches the Liquidation Debt Ratio. See Pool-Specific Parameters for more information

• ℹ️ Mitigation: this can be mitigated by using a lower leverage level, and also monitoring positions during volatile market conditions and closing them before hitting the liquidation parameters.

Smart Contract Risks

• ⚠️ Risk: while we make our best efforts to test all our codes and run multiple unit tests, the contracts have not been formally audited and could potentially have bugs

• ℹ️ Mitigation: we plan to have our smart contracts reviewed and audited after launch