Platform Risks

Platform Risks

As with all sectors of Decentralized Finance (DeFi), there are various risks that users and stakeholders of our platform need to be conscious of:

Tranche Liquidity Risks:

At Xena, we've designed our liquidity system with a robust focus on risk management, enabling Liquidity Providers (LPs) to choose where they provide liquidity based on their risk tolerance. Still, several risks remain when acting as an XLP, such as:

  1. XLPs are exposed to price fluctuations in the underlying assets of each tranche.

  2. XLPs bear the counterparty risk of traders on the platform, essentially taking on the opposite of their PnL.

  3. Tranches can have unbalanced exposure to assets - this occurs when the actual weight of the asset in a Tranche deviates from the target weight. In this case, the XLP's price will be impacted due to changes in the underlying asset weighting.

  4. Tranches might not have sufficient liquidity of an asset to service a trade with the default Risk Factor - this could occur when the trade size is unusually large or the utilization of the target asset is already high in a certain tranche. In this scenario, Xena allocates the unavailable portion to the next Tranche in decreasing risk order.

  5. As seen on several perpetual AMMs, there is a risk that external price sources may be manipulated, where price data is collected while an attacker opens positions and takes profit on perpetual DEXs. Xena has taken steps to mitigate this risk by capping trade sizes of lower liquidity assets and tightening certain Chainlink Price Feed Oracle parameters.

Liquidation Risks:

An open trade position will be liquidated when either the user’s collateral cannot cover the margin fee ($5) or is lower than the maintenance margin (1% of Position Size). Our keepers which manage liquidations are Keeper1 and Keeper2.

Smart Contract Risks:

Decentralized applications carry inherent smart contract risks due to vulnerabilities in their codebase. At Xena, security is our primary concern. We have therefore undergone several audits, and we also have a live ImmuneFi Bug Bounty. The Xena DAO has full ownership and oversight over the platform's security and can commission any further security-related actions.

For more information, please see our detailed Risk Disclosure.

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