Risks

DeFi protocols come with risks, including Extra Finance, please use it at your own discretion.

Investing in Decentralized Finance (DeFi) products carries inherent risks due to the nature of the underlying smart contracts and potential cybersecurity threats. Smart contracts, which are self-executing contracts with the terms of the agreement directly written into code, may contain bugs, vulnerabilities, or coding errors that could lead to the loss of funds, unauthorized access, or other unexpected outcomes. Additionally, DeFi platforms may be targeted by hackers and malicious actors who seek to exploit vulnerabilities in the system, which may result in theft or loss of assets. Users should be aware of these risks and undertake proper due diligence before participating in any DeFi product.

For Yield Farmers

Price Impact

Price impact is the effect that a farmer's individual trade has on the market price of an underlying asset pair. When opening a position, it is important to consider the size of the pool relative to the size of the position. If the position is large, it may require swapping, which could result in a large price impact being incurred. This means that the market price could move significantly due to the farmer's trade. Therefore, farmers must be aware of the factors that can affect the price impact, such farmers can minimize the price impact and make more informed trading decisions.

Impermanent Loss

Impermanent Loss is a crucial concept that farmers must understand, it occurs when the price of one token in the liquidity providing position increases or decreases in comparison to another token. The greater the difference, the more vulnerable the position is to impermanent loss, resulting in less valuable assets at the time of withdrawal than at the time of deposit.

Liquidation

Leveraged products (including leverage yield farming) involve risks due to their inherent nature. The use of leverage amplifies both potential gains and potential losses, which may lead to rapid and substantial fluctuations in the value of your investment. This may result in a higher risk of liquidation, where your position is forcibly closed by the platform to prevent further losses, potentially leading to the loss of your entire initial investment or more. It is important to understand the risks associated with leveraged products, including the possibility of losing more than the initial investment, and to carefully assess their risk tolerance and financial situation before engaging in such activities.

On Extra Finance, opening a leveraged position involves borrowing crypto assets to increase your potential return. Doing so allows you to take advantage of market fluctuations and potentially achieve greater profits than if you had simply invested your own funds. However, it's important to be aware of the risks involved.

One such risk is the possibility of liquidation. If the debt ratio (debt value/position value) of a particular farm exceeds the liquidation threshold, your position will be liquidated. This means that your borrowed funds will be returned to the lender, and any remaining portion will be returned . It's important to keep an eye on the debt ratio and make sure that it stays within safe levels to avoid liquidation. There is also a risk of depleting all assets, particularly in markets with significant price fluctuations and insufficient liquidity to facilitate liquidation at precise execution prices.

For Lenders

Timing of Asset Return

If the utilization rate of the lending pool is at a very high level and most of the assets in the pool are borrowed, users may not be able to withdraw the deposited assets on time until the farmers repay the debt.

Bad Debt

If the liquidation bot fails to liquidate the leverage farming position in time, there would be some bad debt.

Smart Contract Risks

Although our smart contract has undergone rigorous auditing by reputable third-party firms, there is always a possibility of theoretical vulnerabilities.

We are committed to minimizing potential risks and ensuring transparency with our users. However, as with any complex system, unforeseeable circumstances can occur, not limited to DeFi. Please use at discretion and invest only what you can afford to lose.

Risk Management of Extra Finance

• Getting smart contracts audited to reduce the chances of vulnerabilities. You can find the audit reports here.

• We’re also running a bug bounty program on ImmuneFi that rewards individuals for reporting vulnerabilities in our code. You can find further information on this program here.

• We only integrate with mainstream DEXes that have been audited and shown to have a good security record.