# Risks

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](https://level-money.gitbook.io/level-documentation/technical-documentation/audits)).
  * 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