⚠️ Protocol Risks

Important: All DeFi protocols, including Perpetuity, come with risks, which are important to understand before depositing significant amounts of crypto.

Smart Contract and UI Risk

There is a risk that the smart contract or UI has a bug or exploit for unexpected behavior resulting in loss of funds. This risk is inherent to all smart contracts and relies upon the discipline of the development community, core contributors, and auditors.

Blockchain Risk

The Atlas blockchain remains under development, which creates technological, uncertainty and security risks that Perpetuity has no control over. The cost of transacting on the Atlas blockchain is variable and may increase or decrease at any time, potentially impacting all protocol activities.

Oracle Risk

Perpetuity relies on multiple oracles for their price feeds to power liquidations. There is a risk that these oracles report incorrect prices which can result in wrongful liquidations and loss of funds. This risk is particularly relevant during periods of high market volatility or when oracle networks experience technical issues.

Levered Risk

In the event of sharp price movements, traders with leveraged positions can lose more than their collateral value. This risk increases with higher leverage ratios and during periods of extreme market volatility.

Social Loss Risk

In the event that the collateral on the exchange becomes less than the dues outstanding, users on the protocol will take on a socialized loss across market participants. This risk is mitigated through various risk management parameters and collateral requirements, but remains a possibility in extreme market conditions.

Liquidation Risk

Perpetuity offers both leveraged perpetual swaps and borrow/lend. The user's collateral can get liquidated when the value of the user's collateral drops below the user's maintenance margin fraction. These parameters may be adjusted if the risk of liquidation poses a stability risk to the exchange. Users should carefully monitor their positions and maintain adequate collateral to avoid liquidation.

Unrealised PNL Risk

Unrealized PNL can technically go to infinity on a specific number. However, even though a user can have "unlimited PNL", the user will not be able to fully withdraw until all unrealized gains are realized by closing out their position. This means that while profits may appear unlimited, they cannot be withdrawn from the protocol until their open positions are closed.

Borrow Risk

If there is a large amount of borrowing to the extent that the exchange cannot handle the risk of allowing more assets to be borrowed at a specific interest rate, the exchange will adjust its initial margin requirements dynamically. This may make some hedging strategies more difficult and cause an imbalance in the market. Users should be aware that their ability to borrow spot can change based on market conditions and protocol risk parameters.

100% Utilization Risk

When an asset is fully utilized (100% of the supply is lent out), there will be no tokens left in the pool, which means withdrawals and borrows will fail. Users will have to wait until the utilization rate goes down, either through some users repaying their loans or depositing new funds before they can withdraw or borrow.

A user is more likely to be affected by this if their deposit represents a large share of the pool, or if the asset has extremely high borrow demand. This risk is particularly relevant for users with large positions or during periods of high borrowing activity.