🪜Risks

Degens (Using GT)

• Liquidation Risk: As a GT holder in a leveraged position, you're exposed to the risk of liquidation. If the value of your collateral declines significantly, your position could be liquidated to cover the debt, resulting in the loss of your collateralized assets.

• Market Volatility: Leveraged positions amplify both gains and losses. Sudden adverse market movements can lead to losses.

• Interest Rate Risk: While borrowing rates are fixed, if the yields on your collateral (especially if they have floating rates) decrease, your overall returns may be negatively affected.

Fixed-Income Farmers and Lenders (Using FT)

• Liquidation Risk: If the liquidation process isn't fully executed due to dramatic market price changes or other issues, the value of the liquidated assets may not fully cover the lender's principal plus interest. However, TermMax's physical delivery mechanism mitigates this risk by providing a proportional share of the collateral, thereby minimizing potential losses.

• Interest Rate Risk: If market interest rates rise above the fixed rate you're receiving and you decide to sell them before the maturity date, your FT tokens may become less valuable compared to new offerings with higher rates.

Borrowers

• Collateral Liquidation Risk: If the value of your collateral falls below a certain threshold, it may be liquidated to repay your loan, resulting in the loss of your collateral assets.

• Fixed Repayment Obligation with Flexibility:

  • The fixed-rate borrowing means your repayment interest is determined at the time of borrowing, giving you certainty over your maximum repayment cost.

  • Flexibility to Reduce Costs: Before the due date, you can purchase corresponding FT tokens at the market price to repay the debt.

    • If market interest rates are higher than your borrowing rate, you can buy FT tokens at a discount, allowing you to repay your debt at a lower cost.

    • If market interest rates are lower, you can simply pay the fixed interest rate agreed upon at borrowing.

  • This flexibility enables you to potentially reduce your repayment costs, a benefit not typically available in other protocols.

• Market Risk: If the market value of your collateral decreases significantly, you might incur losses upon liquidation beyond what you anticipated.

Liquidity Providers (Supplying Liquidity to AMM Pools)

• Impermanent Loss: Changes in the relative price of tokens in the liquidity pool can lead to impermanent loss, potentially resulting in a lower value than if you'd simply held the tokens separately. However, the smart contract is designed to minimize impermanent loss to protect liquidity providers' profits.

• Market Volatility: High volatility can exacerbate impermanent loss and affect the total value of your pooled assets.

• Withdrawal Risk: Under certain conditions, you might receive less value upon withdrawal than you initially deposited due to market movements and fees.

General Risks for All Users

• Smart Contract and Technical Risks: Bugs, coding errors, or hacks can lead to losses. Network congestion or failures might delay transactions.

• Platform Risk: Reliance on TermMax's infrastructure means that any platform-specific issues could affect user experience and the functioning of the system.

• Oracle Risk: TermMax relies on external price feeds from oracles like Chainlink and RedStone to determine the current prices of assets involved in loans. While these oracles are designed to be secure and reliable, they are potential points of failure. If an oracle is compromised or provides incorrect data, it could lead to inaccurate valuations of collateral and underlying assets. This might result in wrongful liquidations or under-collateralized loans.

Conclusion

While TermMax provides innovative tools to enhance your DeFi experience, it's essential to understand the associated risks with each role. Always perform thorough research and consider your risk tolerance before participating. Diversifying your investments and staying informed about market conditions can help mitigate some of these risks.