☠️Risks

Associated Risks with MoonYield

While MoonYield offers decentralized borrowing and a stablecoin system, there are some risks users should be aware of:

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Liquidation Risk:

• If the collateral ratio of a Vault falls below the minimum required (130%), it may be liquidated.

• Risk to Borrowers: Vaults with insufficient collateral are automatically sold to cover debt, and borrowers face liquidation penalties, potentially losing a portion of their collateral.

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Market Risk:

• Price Volatility: The value of MSS (collateral) can fluctuate significantly, potentially affecting the collateralization ratio and increasing the risk of liquidation.

• MUSD Peg Risk: While MUSD 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.

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Smart Contract Risk:

• MoonYield operates on smart contracts, which are subject to bugs, vulnerabilities, or exploits. (All possible precautions have been taken to mitigate the risk of exploits.)

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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 MUSD at its intended peg.

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Recovery Mode Risk:

• During Recovery Mode, borrowing and Vault management become restricted, potentially limiting user flexibility and liquidity.

• Increased Liquidations: In this state, the protocol aggressively liquidates Vaults to restore collateralization, which may negatively impact borrowers and Stability Pool participants.

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Understanding these risks is essential for managing your involvement with MoonYield. Monitoring collateral ratios and market conditions can help mitigate potential issues.