Discussion of Risk

Black Swan Event

One of the primary risks faced by Vesper pools is a 'black swan' event, where a pool's underlying asset sees a rapid flash crash. In extreme cases, the debtor will not be able to modify their loan fast enough to avoid liquidation. This is a broader risk that affects DeFi lending protocols as a whole.

A partial liquidation is enforced by the lending protocol. Some lenders charge fees on the capital liquidated. This would reflect a financial loss to pool participants.

Exploits

Another primary risk faced by Vesper pools is if a protocol that Vesper routes funds through is exploited. While exploits in DeFi seem to have decreased over time, they still do occur. While Vesper is careful both in the project's own audited codebase, along with the selection of other protocols that funds are routed through, both Vesper and/or other protocols being exploited and having a negative financial impact on user deposits is possible.

Assessing Risk

Vesper pools rebalance their loans algorithmically along parameters specified by each pool. Users are able to view the strategies and weighting being used inside the Vesper dApp to assess the risk they are comfortable taking when making their pool selections.

Stable Coin Depeg

Stable coins have the potential of a depegging risk (when the coin no longer is valued at the price it is supposed to represent). While stable coin pools have historically been a safer product in DeFi, a depegging event could cause user losses.

Negative Yield

In rare instances, a Vesper pool can produce negative yield for a user. These periods of negative yield are usually temporary. This can occur due to borrowing costs exceeding yield on a loan, or rebalancing interest without having a yield harvest on the lent asset. There is a risk that a Vesper pool depositor can earn negative yield in a pool for a loss of capital.

APY Estimation

Estimated APY’s in the Vesper dApp are calculated automatically and algorithmically. Calculating APYs in DeFi is notoriously difficult, and it is possible that the APY being displayed differs from the actual APY being earned. The Vesper team to the best of its ability tries to display an accurate APY. There is a risk however that the APY being displayed is inaccurate at times.

Additional Risk

There are likely additional risks associated with using Vesper Finance that are not listed here.