Echelon
  • ⚡Echelon Protocol
  • CORE
    • Borrow/Lend
      • Core Concepts
      • Borrowing Assets
      • Supplying Assets
      • Protocol Fees
    • Interest Rates
      • Borrow Rates
      • Supply Rates
    • Supported Assets
      • xLPT (Staked LP Tokens)
    • Oracles
  • Security
    • Risk Management
    • Asset Parameters
      • Aptos
      • Movement
      • Initia
    • Supply/Borrow Caps and Rate Limits
    • Liquidations
    • User Risk Parameters
  • Integrations
    • Running a Liquidator Bot
    • Developer Documentation
  • Operations
    • Audits
    • Risks
    • Disclaimer
    • Terms of Service
    • Restricted Geolocations
  • Group 1
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On this page
  • 1. Smart Contract Risks
  • 2. Oracle and Price Feed Risks
  • 3. Collateral and Liquidation Risks
  1. Operations

Risks

1. Smart Contract Risks

  • Undetected Vulnerabilities Echelon’s smart contracts have undergone extensive testing and third-party audits; however, unknown exploits or bugs may still exist. Such vulnerabilities can pose significant risks to the protocol’s assets and solvency, potentially resulting in:

    • Loss of protocol funds

    • Loss of user funds

    • Loss of unrealized yield

    • Governance exploits affecting protocol parameters

  • Bug Bounties Echelon offers a bug bounty program to incentivize security researchers (white hats) who identify smart contract exploits. Rewards vary based on the severity of the vulnerability. To report critical findings, please send details to team@echelon.market.

2. Oracle and Price Feed Risks

  • Price Feed Dependencies Echelon relies on partnered oracle providers for asset price data. Inaccuracies in these feeds can cause unexpected liquidations, impacting both borrowers and lenders.

  • Monitoring and Backup Oracles An Asset Listing process and ongoing monitoring help mitigate oracle issues. If an exploit is detected under pre-established conditions, Echelon will switch to a backup oracle as outlined in its documentation.

  • User Awareness Because different oracles are used for various assets, users are encouraged to review which oracle is being used for each market and evaluate their own risk tolerance.

    • Some oracles depend on pool prices, which can change rapidly in volatile market conditions.

    • Others rely on custom exchange rate mechanisms.

    • Certain oracles leverage external providers (e.g., Pyth, Switchboard).

3. Collateral and Liquidation Risks

  • Collateral Value vs. Debt A core risk arises if a borrower’s collateral value falls below the amount owed, or if the debt grows too quickly. In these situations, the borrower lacks a financial incentive to repay, which can lead to bad debt.

  • Liquidation Process Echelon’s liquidation framework is designed to efficiently repay outstanding debts by selling the borrower’s collateral. However, high market volatility, slippage, gas fees, or insufficient liquidity can hinder timely liquidation.

  • Black Swan Events and Bad Debt In extreme or “black swan” market events, collateral may fail to cover the borrower’s debt. If the protocol cannot recoup sufficient collateral value, it may accrue bad debt, which is then socialized among all lenders in the affected pool.

By understanding and monitoring these risk factors—smart contract vulnerabilities, oracle price feed dependencies, and collateral/liquidation challenges—participants can make informed decisions aligned with their own risk tolerance.

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Last updated 2 months ago