Risks

Description of Risks & Mitigations

This section highlights the risks of using the Level protocol, how we mitigate the risks and any plans to minimize these risks further.

Collateral Risk

• Description: Risk that the underlying collateral is insolvent.

• Mitigations:

  • Strict criteria for deciding what collateral to accept to back lvlUSD.

  • Currently, the only accepted collateral are USDC and USDT.

Lending Protocol Risk

• Description: the underlying lending protocols may accrue bad debt.

• Mitigations:

  • Strict criteria for deciding which lending protocols to deploy collateral into, including liquidity, what collateral a lending protocol accepts, and historical performance during periods of heightened volatility. For lending protocols where collateral assets are selected by curators, we apply a similar methodology to the curators.

Smart Contract Risk

• Description: Vulnerabilities in smart contracts that lvlUSD collateral is deployed into, or that manage lvlUSD collateral may make lvlUSD insolvent.

• Mitigations:

  • All smart contracts are audited by reputable audit firms, and audits are published on our website (link).

  • Internally, at least one other engineer peer reviews all smart contract code.

  • Level uses Hexagate to monitor our smart contracts 24/7 and to automatically respond to critical incidents

Operational Security Risk

• Description: certain protocol functionality, such as emergency collateral rescue functions, are controlled by permissioned roles, which may become compromised.

• Mitigation:

  • All smart contracts are owned by a timelock that are controlled by the admin multisig

  • All admin roles are multisigs

  • All end-signers are cold wallets.

  • The team cannot unilaterally execute transactions, there must be at least one external signer

  • External signers are known, reputable firms such as Spearbit