Liquidity Risks
Last updated
Last updated
Lenders are primarily exposed to the assets they lend, which should be riskier than the collateral provided by the borrower. A lender holding bTokens representing an asset can temporarily be unable to redeem his bTokens for the underlying asset when the utilization rate reaches 100%. This may present a risk to the user who does not consider this case when designing a lending strategy. Liquidation failures due to a network event or extreme price volatility may, in a rare instance, lead to lender loss of funds. Suppose liquidators cannot sufficiently repay a borrower’s debt or the collateral provided by a borrower loses its peg. In that case, a lender may not be able to redeem their originally deposited assets wholly.
Borrowers are primarily exposed to short-term variation in price and lend liquidity. In the case that there is a sudden reduction in lending liquidity, then borrowers facing a utilization rate near 100% may experience a significant increase in borrow interest accrued.
If a user is shorting an asset and there is a sudden increase in the market price of the asset due to an exogenous event, then this may lead to a cascade of short liquidations (short-squeeze). A short squeeze may lead to an unfavorable liquidation for the short seller.
Beta Finance does not utilize an internal AMM at the moment and instead relies on Uniswap and Sushiswap for AMM activity. Please be wary of price impacts and price slippage Beta Finance provides information about price slippage and price impact directly to the user prior to executing a transaction. Even the best-audited protocols with formal verification can experience unexpected behavior when presented with conditions outside the assumptions made during testing. Changes in the AMMs referenced by Beta could lead to unexpected behavior when initiating a short position. Our UI will directly provide several warnings for you before initiating large transactions.
