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Like any DeFi protocol, using Exponent involves some risks for users.

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Smart contract risks

Smart contracts powers blockchain applications like Exponent. While designed with security in mind, these self-executing programs can present risks:
  • Potential vulnerabilities despite security measures;
  • Integration risks with multiple protocols and yield-bearing assets;
  • Possible exploitation leading to loss of funds.
Transaction Immutability
  • All blockchain transactions are permanent and cannot be reversed;
  • Errors in transactions cannot be undone;
  • Users must verify all transaction details before confirmation.

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Underlying protocols

An important aspect of Exponent is that every product/market offered is derived from other protocols and assets. This means that when operating on Exponent, users bear counterparty risks and should ensure they understand these underlying protocols. As such, Exponent can be seen as a “marketplace” that provides access to derivative assets/markets of DeFi products. Exponent does not own or manage these third-party protocols and contracts and consequently is not responsible for any funds lost due to exploits in these third-party contracts.

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Liquidity

Each market on Exponent has secondary liquidity, supplied by liquidity providers and/or market makers. Liquidity shortages could prevent Exponent users from operating effectively before maturity, impacting the ability to exit a trade, for example. However, regardless of liquidity conditions:
  • Yield traders will always receive their yield and emissions.
  • Principal Token holders can always redeem the underlying asset at maturity.

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Declining value risk when yield trading

While not a protocol risk in itself, it is important for users to remember that trading stripped variable yields (Yield Tokens) with maturities means that upon expiry those positions become worthless – unlike underlying yield assets (e.g. SOL), which always retain a market price. Traders need to keep this in mind when opening a position.

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Protocol Fees

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