Known Issues
Users must understand and acknowledge the following risks and protocol mechanics before participating.
Collateral De-Peg Risk
Lenders assume the full risk of the collateral asset de-pegging from its expected value.
Mechanism: In a loan, a borrower provides collateral (e.g., WSTETH) to borrow another asset (e.g., ETH). If the collateral asset loses significant value (a "de-peg" event), the borrower may choose to default on the loan. In this scenario, the borrower keeps the more valuable borrowed asset (ETH), and the lender is left with the de-valued collateral (WSTETH).
Mitigation: Loan-to-Value (LTV) ratios are set to provide a buffer against minor price fluctuations. However, LTVs may not be sufficient to protect lenders from capital loss in the event of a severe or sudden de-peg.
Unified Asset Valuation Model
The protocol operates on a unified valuation model within each specific asset market.
Principle: For any given market (e.g., the USD stablecoin market), the protocol treats all listed assets as being equal in value (1:1). For example, within the USD market, 1 USDC is programmatically treated as equivalent to 1 USDT and 1 DAI.
Implication: This is a core design assumption. Users should be aware that the protocol does not use external price oracles to account for minor price differences between assets in the same market. (Note: This is a non-issue for single-asset markets like ETH).
Decimal Normalization and Dust Amounts
To facilitate interoperability between assets, the protocol's internal accounting normalizes all asset values to 18 decimals. This can lead to the creation of "dust" balances.
Example: USDC uses 6 decimals, while the protocol treats it as having 18. If a user borrows a tiny fraction of a dollar, such as 100 units at 18 decimals (i.e., 100 * 10^-18USD), this amount is too small to exist as a transferable unit of USDC on-chain (1 * 10^-6 USD).
Recommendation: While the protocol does not forbid loans that result in dust, we strongly advise against them as the resulting balances may not be withdrawable.
Advanced Considerations for Market Makers
Market makers should be aware of the following mechanics specific to creating offers.
Offer Matching and High-Volume Micro-Loans
A single, large market maker offer can be filled by an unlimited number of smaller taker loans.
Scenario: An offer to borrow up to 0.1 ETH can be matched by thousands of micro-loans, each of negligible value. This can create a significant administrative burden.
Dust Repayment Facility: To streamline repayments, market makers can pre-deposit funds (e.g., ETH) into the platform. This allows lenders with dust-sized positions to be repaid directly from this reserve on liquidation events.
Taker-Determined Loan Durations
While market makers set a duration range, the final loan duration is selected by the market taker.
Mechanism: A market maker specifies a minimum and maximum duration for their offer (e.g., 5 days to 1 month). A market taker can then initiate a loan for any duration that falls within this range and has at least a 1-day term (e.g., 10 days, 20 days, or 29 days).
Key Consideration: Market makers must acknowledge that the final loan term will be at least their specified minimum but could extend up to their maximum. Setting a high maximum duration may result in a longer-than-expected capital lock-up. The user interface provides warnings when setting long durations to highlight this risk.
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