Risks & Security

An overview of risks pertaining to users and how these risks are mitigated

Overview

Using Fira involves significant risk and may result in partial or total loss of funds. Fira is a non-custodial DeFi protocol that relies on smart contracts and third-party dependencies (e.g., blockchains, tokens, oracles). This overview is not exhaustive and is provided for informational purposes only. You should not use Fira unless you understand how DeFi lending/borrowing works and can bear the risk of loss.

The primary risks for Fira users include:

• Interest rate risk: both fixed-maturity ("fixed-rate") and floating-rate markets may experience volatility. This can create uncertainty for pre-maturity settlement in fixed-maturity markets and can lead to sharp, potentially sustained increases in borrowing costs in floating-rate markets.

• Liquidation risk: borrowers may be liquidated if they fail to maintain sufficient collateralization or otherwise do not properly manage the health of their positions.

• Bad debt risk: lenders may incur losses if collateral value falls below outstanding debt and liquidators are unable (or unwilling) to liquidate positions profitably, particularly during extreme market conditions or rapid price moves.

• Collateral risk: certain collateral assets may carry elevated risks (e.g., volatility, centralization, protocol failures, blacklisting/pausing, oracle issues). Poor collateral selection can increase liquidation and bad debt risk.

• Liquidity risk: liquidity may become constrained or drain from markets. This can make fixed-maturity settlement before maturity difficult or costly (e.g., high slippage), and may cause floating-rate lenders and dynamic lenders to be unable to withdraw when desired.

• Smart contract risk: Fira relies on smart contracts that may contain vulnerabilities, bugs, or unexpected behaviors that could be exploited, potentially resulting in partial or total loss of funds.

These risks are explained in more detail in the sections below.