Risks
Associated Risks with BOOKUSD
While BOOKUSD offers decentralized borrowing and a stablecoin system, there are some risks users should be aware of:
Liquidation Risk:
If the collateral ratio of a trove falls below the minimum required (140%), it will be liquidated.
Risk to Borrowers: Troves with insufficient collateral are liquidated to cover debt.
Market Risk:
Price Volatility: The value of BOOK (collateral) can fluctuate significantly, potentially affecting the collateralization ratio and increasing the risk of liquidation.
BUD Peg Risk: While BUD is designed to be stable, large market fluctuations can threaten its peg to the USD, especially in periods of high redemption activity or during Recovery Mode.
Smart Contract Risk:
BOOKUSD operates on smart contracts, which are subject to bugs, vulnerabilities, or exploits. (All possible precautions have been taken to mitigate the risk of exploits.)
Redemption Risk:
If there are too many redemptions during periods of instability, it could put pressure on the system, leading to insufficient collateral to back BUD at its intended peg.
Recovery Mode Risk:
During Recovery Mode, borrowing and trove management become restricted, potentially limiting user flexibility and liquidity.
Increased Liquidations: In this state, the protocol aggressively liquidates troves to restore collateralization, which may negatively impact borrowers and Stability Pool participants.
Understanding these risks is essential for managing your involvement with BOOKUSD. Monitoring collateral ratios and market conditions can help mitigate potential issues.
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