Risk disclosure

This section highlights key risk categories to be aware of before engaging with Lagoon Protocol and Lagoon App.

By interacting with the Lagoon Protocol, you acknowledge and accept the inherent risks involved. Please note that the risks outlined below are not comprehensive, and additional significant risks may also apply.

For asset managers

1. At protocol level

Smart contract

A vulnerability or code logic error leading to unforeseen issues always exists.

2. At multisig level

Smart contract

Key exploit

Social engineering attacks

3. At market level

Liquidity

Not all assets are equally liquid.

Operations

Bridges

Composability

The composability principle, which allows applications to connect freely to each other, can lead to cascades of liquidations, or involve trust assumptions that can be damaging to curator activities.

Each smart contract adds a new layer of risk.

Legal

Digital assets are largely unregulated in most parts of the world.

Different jurisdictions may treat digital assets differently, and the cross-border nature of the blockchain and of digital assets may make them subject to the laws of various jurisdictions.

You must always make sure that any use you make of any digital asset is compliant with all applicable laws.

A changing or unclear regulatory environment could expose you to sanctions of various kinds and impact.

For end-users

1. At protocol level

Interface

Lagoon's app (https://app.lagoon.finance/) relays data computed off-chain by the curators and presents it in a humanly understandable way.

Although it was built with best practices in mind, it is not immune to internal or external issues caused like human errors and collision with browser extensions.

Smart contract

A vulnerability or code logic error leading to unforeseen issues always exists.

To mitigate this risk, Nethermind conducted early november a thorough audit on Lagoon beta codebase the overall architecture rely on.

Counterparty

Before entering a vault, Lagoon invite everyone to carry out due diligence on the curator behind. The asset allocation is important considering.

In case of high demand, users might face delays when trying to withdraw assets if a majority of them are used as collateral or locked in.

The curator may change strategy without notifying depositors.

We invite you to assess your risk tolerance on a regular basis.

Oracle

The valuation committee may fail to compute the shares value correctly due to poor data. If the user enters or exits during this settlement period, he's exposed to loss of funds.

Depending on setup, the curator could manipulate price oracle.

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2. At multisig level

Blockchain

Depending on the underlying chain on which the curator operates, there are different trust assumptions.

Key exploit

The curator could suffer a social engineering attack that results in a private key exploit and loss of funds.

Management setup

If he has the full scope of permissions, the curator can run away with users' funds at any time. That's why it's critical to implement safeguards.

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3. At market level

Liquidity

Not all assets are equally liquid.

In case of emergency exit, the user can retrieve instantly all tokenized positions and ERC-20 tokens in proportion to his stake in the vault.

For instance, LP-positions on Uniswap v3 aren't eligible because NFTs cannot be fractionalized. And more generally speaking, this is also the case of staked assets where no receipt tokens are given.

Portfolio exposure

High volatility and poor management can lead to liquidations.

Market events such as depegs or hacks can lead to latent or complete losses.

Performance

For many reasons, a curator could underperformed the market and provide bad results. To avoid disappointment, be sure to do your research before depositing in the vault.

Track record, skilled operator...

as their inherent risks and performance are outside Lagoon's oversight.

Regulatory

Different jurisdictions may impose specific tax rules and treatments to digital assets. You must ensure you understand the tax implications of your activities, and always comply with all reporting and payment obligations applicable to you.