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Risks

Farming and participating in DeFi comes with certain risks. Below, we discuss the potential risks associated with using SCV.finance.

Risks to NFT Collectors

NFT Price Drop:

  • Risk: the risk when the NFT's selling price in marketplace goes down below the initial purchase price.

Risks to Yield Farmers

Price impact when entering / exiting a position:

  • Risk:
    • If you try to open a large position relative to the pool size and require swapping, you transaction could incur a large price impact.
    • As an example, if a liquidity of a pool is USD 100 million, swapping USD 1 million (1% of pool’s liquidity) worth of tokens would incur ~4% price impact.
    • If you are unfamiliar with how price impact works for AMM, please read here on how xy = k AMMs work.

Impermanent Loss (IL):

  • Risk:
    • Risk of (impermanent) capital loss from asset rebalancing in the Automated Market Maker ("AMM") pool.
    • Stable coins pairs farming are also subjected to impermanent loss. Just like any other coins, the price of stable tokens are dictated by supply and demand, which some time can cause the price to be off-pegged. While this value is generally small and transient, we have seen instances where stable coins stay off-pegged for an extend period of time. By opening a position with a large leverage, you are also amplifying the IL on your principal.

Smart Contract Risks

  • Risk:
    • While smart contracts have been audited by third-party firms, they could theoretically have vulnerabilities.
While we do our best to eliminate all the possible risks, DeFi is an industry where events that no one predicted can occur(the dreaded black swans). So please don’t invest your life savings, or risk assets you can’t afford to lose. Try to be as careful with your funds as we are with our code.