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Financial Risks

Interest Rate Risk

Interest rate risk arises from the potential for market rates to diverge from the P2P rate of your loan over time. Borrowing or lending at a P2P rate for a specific duration may result in your loan being more expensive or cheaper than the prevailing market rate. The sensitivity to interest rate changes increases with loan duration which in this beta is 7 days.​

Liquidity Risk

The diverse range of collateral accepted by Paystream can expose users to liquidity risk. Different tokens have varying levels of underlying liquidity and availability across trading venues. This risk of illiquidity of collateral should be considered when lending.

Liquidation Risk

Loans on Paystream are subject to both price and payment-based liquidations. If the collateral value relative to the principal plus accrued interest falls below the liquidation threshold, the collateral may be seized. In such cases, repayments made will be forfeited, and the collateral will be transferred to the liquidator. Borrowers should closely monitor their LTV ratio, as a ratio of 0% indicates eligibility for liquidation. To avoid liquidation, borrowers can repay a portion of the loan or add more collateral.

Time Risk

Loans that are not set up to 7 days automatically or if there are bot issues it may be subject to liquidation early. This will result in the loss of collateral and is unrecoverable.

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Operational Risks

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Smart Contract Risk

Contracts inherently risk containing vulnerabilities that can be exploited by attackers, including compromised or manipulated external dependencies and economic incentives. As the contracts are not audited we have implemented a SEAT functionality which allows only whitelisted addresses can interact with the protocol

Oracle Price Risk

Any Paystream loan may be connected to an oracle, as established by the borrower or lender in the initial order. For all loans on Paystream, Pyth have been determined by the Paystream team. All oracles are subject to price manipulation or incorrect inputs, falsely reducing or increasing asset values, leading to premature liquidations or bad debt. Oracle quality, including safety, liveness, centralized control, and precision and frequency of price updates, should be considered in assessing risk.