Risks

The Arenas Protocol offers decentralised access to liquidity but is not without risks. Robust risk management measures, including smart contract audits and carefully set risk parameters, are in place to help mitigate risks. Below is an overview of key risks and mitigation efforts.

Smart Contract Risk

Smart contracts can contain software bugs or other vulnerabilities within the protocol code and the underlying reserve tokens. To mitigate these risks, Arenas code is publicly available for audit and has undergone multiple external third-party professional audits. Any proposed changes to the protocol code are thoroughly reviewed and approved prior to implementation by the Arenas team. Additionally, the protocol runs a continuous bug bounty program to incentivize external developers to identify and report any issues they may find so they can be fixed.

Oracle Risk

Arenas relies on third-party oracles for price feeds and external data, such as redemption ratios for liquid staking tokens. This reliance introduces potential risks such as incorrect valuations if an oracle fails or is compromised. To reduce this risk, Arenas uses decentralised oracles like Chainlink, which provide tamper-resistant data feeds, greater reliability, and security measures.

Collateral Risk

Arenas continuously tracks collateral performance and market stability. The value and liquidity of assets used as collateral can fluctuate, leading to the risk of under collateralisation or bad debt. Arenas mitigates these risks by setting key risk parameters such as loan-to-value (LTV) ratios and liquidation thresholds. These parameters are continuously monitored by risk service providers and can be adjusted by Arenas team to respond to market conditions.

Network / Bridge Risk

Arenas operates across multiple blockchain networks and bridges, each with potential risks such as congestion, censorship, or security vulnerabilities. To address these types of risks, Arenas uses a careful network onboarding framework that thoroughly vets new networks and bridges before they are integrated into the protocol. Only thoroughly reviewed and secure systems are integrated, minimising risk.