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Before engaging in any DeFi activity you need to thoroughly understand the risks involved.

DeFi is very high risk. Do not deposit any funds you are not willing to lose.

You are not allowed to use Float if you are from or reside in the USA or additionally this comprehensive list of other jurisdictions in our terms and you will need to cryptographically sign that you understand and agree to this before you are able to use Float.

By choosing to use Float you will be exposed to risks. This is a non-exhaustive summary of these risks โ€“ there may be other risks involved.

Each of the items mentioned are summaries. You should conduct additional research on each one until you have a thorough understanding of how it will affect your position.

Your position may not move as you expect#

In addition to the movement of underlying asset prices, positions opened in Float can be affected by multiple factors that can cause your position to move in unexpected ways.

Exposure shifts#

Exposure for long and short pools will remain at 100%, as long as there is sufficient liquidity in the Float pool to act as a counter-party to the imbalance between long and short pools.

Should the system enter the edge cases where there is insufficient Float pool liquidity, long and short pools will have less than 100% exposure to price movements, at their respective pool leverages. This will change the way positions in those pools are affected by price updates.

Volatility decay#

Leveraged positions and even 1x leveraged short positions are subject to a phenomenon called volatility decay, which can cause deviations between actual portfolio performance and expected performance. Volatility decay becomes more pronounced with increased leverage, longer trade durations and other factors.

Volatility decay is a feature of all leveraged financial products, and makes leveraged assets unsuitable for long term holding.

To learn more see our volatility decay page.

Stablecoin risk#

All positions in Float are minted with a stablecoin, such as DAI. In Float Alpha we used DAI because of how it balances security, decentralization and liquidity. However, issues which would affect DAI and Maker DAO could affect user funds.

Smart contract risk#

Float puts the security of our users above anything else and we follow the highest standards for auditing our smart contracts before deploying. However, as with any DeFi protocol, we cannot guarantee that our contracts contain no exploits or vulnerabilities which could lead to loss of user funds.

Oracle risk#

Oracle risk, is the risk that price feeds can be manipulated and the wrong price is input into a smart contract, falsely reducing or increasing the price of an asset, creating an arbitrage opportunities.

Float Arctic has used both Chainlink and RedStone's oracle solution for the price feeds.There has been no final decision on which oracle solution to use. Whichever oracle solution is used, there is a possibility of exploits, downtime, or other attacks that could drastically affect the Float Arctic markets which use those oracles.

Please also familiarize yourself with prior risk articles published in our blog: Apeing in responsibly and Managing risk in float alpha