What are the risks of lending in Ajna?

Learn more about lending in Ajna

There are 6 main risks when lending in Ajna.

  1. You are left with collateral tokens: If your lending price is close to the market and the price of the collateral token goes below it, you will be left with only collateral tokens to claim. Your lending price acts as a limit order in that case. For example, if the price of Wrapped Bitcoin is 20,000 USDC and you lend at 18,000, you are offering very lenient borrowing terms. If the price of WBTC goes down against USDC and goes below your 18,000 lending price you will have WBTC to withdraw, having bought it at 18,000. If the price decreases, your position will be at a loss. You must monitor your position to avoid losses and always lend below market price.

  2. Unable to withdraw: During liquidations, the utilized part of the pool up to the amount of tokens being recovered from borrowers is frozen. This means that while liquidations last, your liquidity might not be available for withdrawal in all cases. Liquidations should last at least 6 hours, after which you can withdraw normally if the liquidation was successful.

  3. Frozen Position: If the liquidation wasn't successful, you might need to withdraw collateral or some part of your position in collateral. If your position is frozen during liquidation and the price goes below your selected lending price, it will be traded for collateral even if you can't withdraw.

  4. Not receiving interest: Deposits below the minimum yield point will receive no interest since these deposits are not actively lent out nor work as backup liquidity. This could happen if the threshold price of the least collateralized loan goes up. The threshold price is calculated as the total debt/collateral. Since the LUP and HTP move, lenders may originally deposit in a yield-bearing "range," but then the prices or liquidity in the pool may move, resulting in their lent position now no longer earning interest. You will see this area in grey, and you can adjust your position in such cases to lend at the active range.

  5. System risk: Ajna is a new bold take in lending protocols; such innovation carries risk from smart contract bugs and design flaws; as the protocol gets used and its design is battle-tested confidence in the system will grow.

  6. Unexpected behavior: Ajna is permissionless and has no governance, illiquid pools or uncommon tokens might not behave as expected, liquidations might not be triggered, or they might not be as successful as common tokens. Summer.fi offers selected pairs for users to pick, but in all cases you should feel comfortable holding the collateral token at the selected price.

Last updated