Risks

Using the Based Protocol involves certain risks inherent to decentralized finance and this specific system. As a non-custodial protocol, your funds are managed by smart contracts according to their code. Understand these potential risks before participating:

Market Risks

• BSD Peg Deviation: While the protocol has mechanisms (redemptions) designed to keep BSD close to $1 USD, market conditions could cause its price to deviate temporarily or persistently above or below this target.

• Collateral Price Volatility: The value of your sBTC collateral can fluctuate significantly. A sharp drop in the price of Bitcoin can lower your vault's Collateral Ratio (CR), potentially leading to liquidation if it falls below the 110% Minimum Collateral Ratio (MCR).

• Stability Pool Exposure: If you deposit BSD into the Stability Pool, your deposit may be used to offset debt from liquidated vaults. While you receive liquidated sBTC collateral in return (typically at an effective discount), if the sBTC price continues to fall significantly after you receive it, the value of the collateral could end up being less than the value of the BSD used, resulting in a net loss.

Protocol & Technical Risks

• Smart Contract Vulnerabilities: Although designed for security, the protocol's smart contracts could contain undiscovered bugs or vulnerabilities that might be exploited, potentially leading to loss of funds. (Note: Information on security audits should be reviewed when available).

• Oracle Issues: The protocol relies on external price oracles (DIA or Arkadiko) for sBTC/USD values. Oracle failures, manipulation, or providing significantly delayed prices (beyond the 9-block staleness check) could lead to incorrect collateral valuations, improper liquidations, or unstable protocol operations.

• Keeper Failures: Critical functions like liquidations and periodic interest accruals rely on external Keepers to trigger transactions. If Keepers fail to operate correctly or promptly, liquidations might be delayed, or system state updates might lag, potentially impacting protocol health or individual positions.

• Stacks Blockchain / sBTC Integrity: The protocol operates on the Stacks blockchain and uses sBTC. Any underlying issues, bugs, or failures within the Stacks network or the sBTC bridging/token mechanism could impact the Based Protocol and user funds.

Centralization Risks

• Admin Key Control: A designated admin address holds significant control over the protocol. This includes the ability to pause/unpause the system, activate maintenance mode, upgrade core smart contracts, change critical economic parameters (like fees, collateral ratios, thresholds), modify the list of approved contracts, change the Keeper address, and set the protocol fee destination.

• Admin Key Risk: If the admin key(s) are compromised or used maliciously, it could lead to theft of funds held by contracts (like fees), manipulation of protocol parameters, or disruption of operations. Users rely on the security practices and trustworthiness of the entity controlling the admin key.

Always conduct your own research and understand these risks fully before interacting with the Based Protocol. Do not deposit more funds than you can afford to lose.