The use of Impermax Finance involves risks. Only invest what you can afford to lose. By using this application you acknowledge and take responsibility for the risks involved. The possible risks include, but are not limited to, the following.
Impermax has been audited and time tested. The Impermax Core technology secured more than $250M in crypto assets at the all time high, and has never been exploited in the past. However, all DeFi applications' smart contract may contain bug or errors that haven't been discovered yet. Please consider this while using Impermax’s DeFi applications.
Supplying liquidity on Impermax is a low risk way to earn interest on your funds. However, it is not risk-free. There are two main factors that a lender should consider:
You may temporarily be unable to withdraw: as with every protocol based on lending pools, the lender may not be able to withdraw all of his funds at a certain point in time if there isn’t enough liquidity in the pool. Impermax uses a dynamic interest rate model that reduces the likelihood of funds not being withdrawable for a prolonged period of time.
Unliquidated loans: lenders rely on the fact that when the ratio of collateral to loan value for a certain loan is low enough, liquidators will take action to liquidate the loan. However, if this does not happen in time the loan may default. Impermax aligns all the economic incentives to reduce the likelihood of loan default to the minimum. It also keeps a percentage of the protocol profits in reserves that can be used to repay eventual loans that have defaulted.
You can take advantage of Impermax Isolated Lending Pool architecture in order to mitigate lending risks. If there are multiple lending pools where you can lend the same asset, then it can be a good idea to supply that asset to multiple pools. In this way you are spreading the risk between different pools so that if one security was affected, your funds on all the others would still be safe. Also the risk of not being able to temporarily withdraw would be much lower in this way.
When you use your LP tokens as collateral to require a loan or enter in a leverage position on Impermax, your collateral is always at stake and it may be liquidated when certain conditions are met. Before requiring a loan the application will show an estimation of the liquidation prices. When the market price crosses the liquidation prices, your collateral may be liquidated in order to repay your loan. Please notice that the liquidation prices are not fixed and may change as your loan size increases.
Be Aware of Low Liquidity Pairs and Malicious Pairs
Impermax is a permissionless protocol to which anyone can add a new pair. This means that some pairs will involve more risks than others, and some may even be created solely as scams.
Low Liquidity Pairs
Low liquidity pairs where there are not many active users can be very risky for both borrowers and lenders. In particular a few problems of low liquidity pairs are:
Inactive price oracle: Impermax relies on TWAP (Time Weighted Average Prices) calculated as the average price between an operation and the previous one on the pair. If a pair is inactive for a long period of time, the price of the oracle may differ substantially by the market price.
Inactive liquidators: as soon as a loan becomes liquidatable, liquidators can liquidate it and earn a profit. However, in an inactive pair there may be no liquidator following liquidations, and this can result in a possible funds loss for lenders.
Users may create pairs on Impermax solely as scams. If you deposit your funds in such a pair you may not be able to withdraw them. A good way to avoid using malicious pairs is by not using URLs given to you by other users. Only use verified pairs, those listed in the home of the Impermax user interface.