Risks

This section highlights the risks of using or staking lvlUSD, how we mitigate the risks and any plans to handle 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 collateral accepted are USDC and USDT\

Lending Risk

  • Description: the underlying lending protocols may accrue bad debt

  • Mitigations:

    • Strict criteria for deciding which lending protocols to deploy collateral onto, 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 reserve managers.

    • 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 our auditing partners, 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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