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Risks & Important Considerations

Before using Naga, it's critical to understand the risks involved in DeFi protocols. Please read this section carefully.

Warning

Naga is a DeFi protocol involving financial risk. You could lose some or all of your deposited funds. Never invest more than you can afford to lose.

Smart Contract Risks​

Code Vulnerabilities​

Risk: Smart contracts may contain bugs or vulnerabilities that could be exploited.

Mitigation:

  • Naga contracts have been audited by QuillAudits.

Your Action:

  • Understand that audits don't guarantee safety
  • Start with small amounts until comfortable
  • Monitor protocol announcements

Upgrade Risks​

Risk: Protocol upgrades could introduce new bugs or change functionality.

Mitigation:

  • Multi-sig governance for upgrades
  • Timelock mechanisms for changes
  • Community review periods

Your Action:

  • Stay informed about protocol changes
  • Review upgrade proposals if you're a stakeholder

Market Risks​

Price Volatility​

Risk: Cryptocurrency prices can change rapidly and dramatically.

Impact on:

  • Swapping: Price can change between quote and execution
  • Vaults: Asset values can decrease, reducing vault value
  • Borrowing: Collateral value drops can trigger liquidations

Mitigation:

  • Use appropriate slippage settings for swaps
  • Diversify vault deposits
  • Maintain low LTV ratios when borrowing
  • Monitor positions during volatile markets

Your Action:

  • Don't invest more than you can afford to lose
  • Have a plan for managing volatility
  • Consider stable assets for lower risk

Market Manipulation​

Risk: Large holders or coordinated actors could manipulate token prices.

Impact: Could trigger unwanted liquidations or unfavorable trades.

Your Action:

  • Be cautious with low-liquidity tokens
  • Monitor unusual price movements
  • Use established tokens when possible

Liquidation Risks (Borrowing)​

What is Liquidation?​

When your LTV exceeds the maximum LLTV, liquidators can repay your loan and take your collateral at a discount.

Causes of Liquidation​

  1. Collateral Price Drops: Your collateral becomes worth less
  2. Borrowed Asset Price Rises: Your loan becomes worth more
  3. Accrued Interest: Unpaid interest increases your loan balance
  4. Oracle Price Updates: Sudden price feed changes

Consequences​

  • Loss of Collateral: Liquidators receive your collateral
  • Liquidation Penalty: Additional fees on top of loan repayment
  • Partial Liquidation: Some protocols liquidate in steps

Prevention​

  • Maintain LTV well below maximum (recommended < 20%)
  • Monitor positions daily during volatile markets
  • Add collateral or repay loans when LTV increases
  • Use price alerts for your collateral assets

Oracle Risks​

Price Feed Dependency​

Risk: Protocols rely on oracles (price feeds) to determine asset values.

Potential Issues:

  • Oracle failures or delays
  • Incorrect price reporting
  • Manipulation of price sources
  • Network congestion affecting updates

Impact:

  • Unfair liquidations
  • Incorrect vault valuations
  • Poor swap execution

Mitigation:

  • Naga uses reputable oracle providers
  • Multiple price sources where possible
  • Circuit breakers for extreme price movements

Your Action:

  • Maintain extra safety margins
  • Be aware during network congestion
  • Monitor positions during oracle updates

Liquidity Risks​

Vault Liquidity​

Risk: Vaults may not have enough liquidity for immediate withdrawals.

When It Happens:

  • High utilization periods

Impact: You may need to wait to withdraw funds.

Your Action:

  • Check vault utilization before depositing
  • Don't deposit funds you need immediate access to
  • Diversify across multiple vaults

Trading Liquidity​

Risk: Insufficient liquidity for your trade size.

Impact:

  • High slippage
  • Failed transactions
  • Unfavorable execution prices

Your Action:

  • Check liquidity pools before large trades
  • Split large orders into smaller ones

Counterparty Risks​

Systemic Risks​

Blockchain Risks​

Risk: Issues with the underlying blockchain.

Examples:

  • Network congestion causing delayed transactions
  • Chain reorganizations (reorgs)
  • Network-wide attacks or failures

Impact: Could prevent you from managing positions during critical times.

Your Action:

  • Maintain larger safety margins during known network issues
  • Have backup plans for high-priority operations

Regulatory Risks​

Risk: Changing regulations could affect protocol operation or your access.

Examples:

  • New laws restricting DeFi usage
  • Geographic restrictions
  • Tax implications

Your Action:

  • Stay informed about regulations in your jurisdiction
  • Consult with legal/tax professionals
  • Be prepared for potential changes

Composability Risks​

Risk: Naga interacts with other DeFi protocols.

Impact: Issues in connected protocols could affect Naga.

Examples:

  • DEX router problems affecting swaps

Your Action:

  • Understand the protocols Naga integrates with

Operational Risks​

User Error​

Risk: Mistakes in using the protocol.

Common Errors:

  • Sending tokens to wrong addresses
  • Approving malicious contracts
  • Misunderstanding protocol mechanics
  • Panic selling during temporary volatility

Prevention:

  • Double-check all transactions
  • Start with small amounts
  • Read documentation thoroughly
  • Never share private keys or seed phrases

Wallet Security​

Risk: Compromise of your wallet or private keys.

Best Practices:

  • Use hardware wallets for large amounts
  • Never share seed phrases
  • Verify contract addresses before approving
  • Be cautious of phishing attempts
  • Use wallet address whitelisting when available

Phishing and Scams​

Risk: Fake websites or communications impersonating Naga.

Protection:

  • Bookmark the official website: naga.fi
  • Verify URLs before connecting wallet
  • Be skeptical of unsolicited messages
  • Don't click random links
  • The team will never ask for your private keys

Financial Risks​

Opportunity Cost​

Risk: Funds locked in one protocol can't be used elsewhere.

Consideration: Evaluate if other opportunities offer better risk-adjusted returns.

Fee Impact​

Risk: Transaction fees and protocol fees can reduce returns.

On Small Amounts: Transaction fees can be proportionally large.

Your Action:

  • Calculate break-even points
  • Consider fee efficiency
  • Batch operations when possible

Risk Management Strategies​

Diversification​

  • Don't put all funds in one vault or position
  • Use multiple assets and strategies
  • Spread across different protocols

Position Sizing​

  • Start small while learning
  • Scale up gradually
  • Never invest more than you can afford to lose

Regular Monitoring​

  • Check positions daily during volatile periods
  • Set up price alerts
  • Review protocol announcements

Exit Planning​

  • Know your exit criteria before entering
  • Have plans for both profit-taking and loss-cutting
  • Don't let emotions drive decisions

Continuous Learning​

  • Stay updated on protocol changes
  • Learn from community experiences
  • Understand new features before using them

Emergency Procedures​

If You Suspect a Problem​

  1. Don't panic: Take time to assess the situation
  2. Verify information: Check official sources
  3. Secure your funds: Withdraw if genuinely necessary
  4. Seek help: Ask in official community channels

If You're Near Liquidation​

  1. Act immediately: Don't wait for prices to recover
  2. Add collateral or repay: Lower your LTV
  3. Don't over-leverage: again in the future

If You Made an Error​

  1. Don't compound it: Don't try to "fix" it hastily
  2. Seek guidance: Ask in community channels
  3. Learn from it: Understand what went wrong

Disclaimer​

This documentation is for informational purposes only and does not constitute financial, legal, or tax advice. DeFi protocols involve significant risk, including the potential loss of your entire investment.

  • Naga is provided "as is" without warranties
  • Past performance doesn't guarantee future results
  • You are solely responsible for your decisions
  • Consult professionals before making financial decisions

By using Naga, you acknowledge and accept these risks.

Resources​

  • Official Website: naga.fi
  • Community: Telegram
  • Security: Review audit reports (linked on website)
  • Updates: Follow official announcements

Final Thoughts​

Understanding these risks is crucial for using Naga safely and effectively. While we've implemented multiple security measures and best practices, no DeFi protocol is without risk.

Always:

  • Do your own research (DYOR)
  • Invest responsibly
  • Ask questions when unsure
  • Monitor your positions
  • Stay informed

Safe trading!