Risks

We want to make sure you understand some of the main risks involved in interacting with Universe Nation Farm, so please carefully review the below. Always do your own research.

General

With any Decentralised Finance (Defi) protocol in crypto, you should only risk what you can afford to lose. Loss of funds can happen due to unforeseen vulnerabilities, bad actors or for other reasons, even if the underlying code for the protocol has been audited.

You must never share your seed phrase with anyone, and no one claiming to be from a Defi protocol will ever need to request it. Please apply safe wallet management practices, such as revoking approvals when you are done using a protocol. The Rugdoc wiki is a good resource for more safe yield farming tips: https://wiki.rugdoc.io .

Cryptocurrency and Defi is a largely unregulated industry. This means that consumer protection laws or laws that protect participants in traditional finance activities may not apply in crypto or to Defi. You should familiarise yourself with and follow any laws or regulations that may apply to your activities in crypto/Defi. In some countries and states, crypto-related activities are either illegal or subject to licensing requirements. You should also familiarise yourself with and follow any tax reporting obligations relevant to you.

Price risk

All cryptocurrency assets are subject to a price/market risk. While "stable" coins linked to a fiat currency such as USD are less volatile than other cryptocurrency assets, these may - in extreme market situations - lose their "peg" so they are worth less than the fiat currency they are linked to. Changes in the underlying price of the cryptocurrency asset, e.g. against USD, will affect the USD-denominated value of your deposit in the farm.

Tokens such as UNIVERSE with limited liquidity come with an extreme price risk compared to the high market cap cryptocurrencies such as BTC or ETH. Native tokens can go parabolic in the space of minutes or hours, and dump just as quickly. This is just the market at work. There is very little a dev team can do to control this, especially during short term price movements.

Impermanent loss

Impermanent loss only affects liquidity pools where there is more than one token locked in the pool. In simple terms, impermanent loss is the difference between holding tokens in the liquidity pool and holding them separately. It occurs when the price of tokens inside a liquidity pool diverge in any direction. The more prices diverge from each other, the greater the impermanent loss. It is referred to as impermanent because it would only materialise, i.e. become permanent loss vs the "buy and hold" strategy, once you break up the liquidity pool. If the price of the tokens in the pool return to the exact price as when you created the liquidity pool, the loss is neutralised. Your share of trading fees earned within a liquidity pool can offset impermanent loss, sometimes more than compensating for the impermanent loss, but this is not guaranteed.

Impermanent loss is a particular risk in relation to pools where prices between the tokens in the pool are not correlated, such as liquidity pools including the native or other highly volatile tokens.

Smart contract risks

This refers to the risk in any Defi protocol which uses smart contracts to which you entrust your cryptocurrency assets containing bad/malicious code or exploit vulnerabilities. These are risks which are typically addressed in an audit and we have also dedicated an entire section - Security - so you can better understand how we mitigate these risks in practice.

Other technical risks

These are risks related to the web interface being unavailable/faulty, limitations/delays in the Avalanche network on which the smart contracts are hosted, or problems with one or more of the external protocols involved. While such risks are likely to be temporary in nature, they may result in you being unable to make a trade, or to deposit/withdraw in a timely manner. While the team will endeavour to only interact with trusted external protocols, we of course cannot guarantee that there will not be issues with them.