Risks
DeFi protocols carry inherent risks, including Extrafi XLend, please use it at your own discretion.
At Extrafi XLend, we are committed to mitigating risk and maintaining the utmost transparency with our users. However, the dynamic nature of DeFi ecosystems means that unforeseen events may occur. Users are encouraged to review the following risk factors carefully before participating in the protocol.
Smart Contract Risk
Smart contract vulnerabilities pose a potential threat of exploitation by malicious actors, which could result in loss of funds. This risk is intrinsic to all smart contracts, including Extrafi XLend.
Liquidation Risk
Users engaging in borrowing activities on Extrafi XLend must maintain a specified collateral ratio. If the collateral value drops below the required threshold (determined by asset-specific LTVs), an automatic liquidation process is triggered to maintain protocol stability. In extremely volatile market conditions, liquidations may result in a significant or complete loss of collateral.
Oracle Risk
Extrafi XLend utilizes Chainlink Oracle as real-time price feeds for calculating collateral value, debt value, and liquidation thresholds. While Chainlink is highly reliable, the possibility of Oracle mispricing, inaccuracies, or manipulation cannot be entirely eliminated. Such events could potentially lead to unintended liquidations.
Withdrawal Delay Risk
When the lending pool's utilization rate nears or reaches 100%, users may face delays in withdrawing their deposited assets. This situation may persist until borrowers repay their loans or new liquidity enters the pool.
Bad Debt Risk
Bad debt occurs when the collateral provided by a borrower falls below the required threshold and the protocol cannot recover the full borrowed amount during liquidation. This can happen if the liquidation bot fails to liquidate the borrower's collateral promptly due to market volatility, liquidity issues, or network delays.
Risk Management of Extrafi XLend
Smart Contract Risk
Extrafi XLend has implemented proactive measures to mitigate smart contract risk:
Built on the battle-tested Aave V3 codebase, with additional enhancements and subsequent fixes
Undergone comprehensive audits by leading third-party security firms in the blockchain space
Maintain an active bug bounty program on ImmuneFi, incentivizing whitehats to identify and report potential vulnerabilities
Liquidation Risk
Extrafi XLend utilizes the same Liquidation Mechanism 2.0 as Extrafi’s Leveraged Yield Farming (LYF) product, which has been successfully maintaining the safety of the lending pool for over 18 months.
For more information, please refer to Liquidations.
Oracle Risk
Extrafi XLend has implemented a monitoring system to detect Oracle manipulation and abnormal price feeds, protecting the protocol from malicious behaviors. This system includes:
Flash loan activity detection
Price band and limit settings and detection
Withdrawal Delay Risk
To mitigate withdrawal delays, Extrafi Xlend implements utilization caps for lending pools. These caps help maintain a balance between borrowing and lending, reducing the likelihood of liquidity shortages.
Bad Debt Risk
Liquidations on Extrafi XLend are permissionless, allowing anyone to initiate the process for qualifying positions. (See more details here)
If both liquidation and RiskReap Vaults fail to fully cover the bad debt, the Rainy Day Fund serves as the final layer of defense.
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