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Risk Parameters

The risk management framework of the Lekker protocol is designed to safeguard users and maintain the stability of the ecosystem. Since the protocol integrates with existing lending protocols to provide liquidity for leveraged positions, the associated risks are inherited from these underlying platforms, such as Aave V3.

Categories of Risk​

Liquidity Risk​

Liquidity risk arises from the possibility that there may not be enough liquidity in the lending protocol to fulfill large withdrawal requests or liquidate positions efficiently on Uniswap. Users should be aware that in times of high market volatility, accessing liquidity might become challenging.

Collateral Risk​

Collateral risk pertains to the risk of collateral value dropping below the required threshold, leading to liquidation. This is managed by maintaining adequate collateralization ratios, ensuring that positions remain solvent. Inherited from the lending protocol, these ratios dictate the minimum amount of collateral needed to support leveraged positions.

Interest Rate Risk​

Interest rate risk involves fluctuations in borrowing rates within the lending protocol, which can affect the cost of maintaining leveraged positions. Users should monitor interest rate changes, as they can impact the profitability of their trades.

Protocol Risk​

Protocol risk refers to the inherent risks associated with the smart contracts and mechanisms of the underlying lending protocol. These include risks related to potential smart contract vulnerabilities or governance changes within the lending protocol.

Risk Management in Lekker​

Lekker provides tools and analytics to help users monitor and manage these risks effectively:

  • Real-Time Monitoring: Applications and users can access real-time data to track the status of their positions and make informed decisions.
  • Collateralization Ratios: Ensures that every K Token maintains the required ratio upon new mints and burns.
  • Automated Exit: Automated processes are in development to exit positions when collateral falls below critical thresholds, this would be an opt-in feature for users.

For assets with underlying liquidity backed by Aave V3, refer to the Aave V3 documentation for more detailed information about the risk management mechanisms and parameters.

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