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 size, 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.

Slashing Risk

Description: Operators we delegate restaked assets to may get slashed, leading to insolvency.
Mitigations:
- Currently, Level is only restaking onto Symbiotic. Level's Symbiotic vaults are configured to redirect slashed funds back to the lvlUSD reserves.
- Other restaking protocols will undergo a risk/reward analysis, which includes features such as history of slashing, diversity of the operator set, and historical performance.

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 may also run competitions or have bug bounties in the future to gather feedback from the community.

Operational Security Risk

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

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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 size, 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.

Slashing Risk

Description: Operators we delegate restaked assets to may get slashed, leading to insolvency.

Mitigations:

Currently, Level is only restaking onto Symbiotic. Level's Symbiotic vaults are configured to redirect slashed funds back to the lvlUSD reserves.
Other restaking protocols will undergo a risk/reward analysis, which includes features such as history of slashing, diversity of the operator set, and historical performance.

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 may also run competitions or have bug bounties in the future to gather feedback from the community.

Operational Security Risk

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

Mitigation:

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.