Risks

Hoenn is designed as a lending-based unified liquidity protocol that allows users to borrow synthetic assets (uTokens) against LRTs. The protocol is both proprietary and open-source software. Using Hoenn involves various risks, such as potential losses from digital asset deposits through smart contracts, exploits, or liquidations. Users are advised to thoroughly review our documentation to understand how the protocol works.

Smart Contract Risk

Hoenn is built on smart contracts. While these will undergo multiple audits before launch, a fatal error or vulnerability may exist that would allow a portion or all of the protocol's funds to be hacked.

Oracle Risk

Hoenn depends on oracles to assess the amount of assets certain LRTs have in their reserves. Even though there are important safeguards in place, oracle failures could mislead the protocol into misallocating its assets, risking under-collateralization.

Slashing and Liquidation Risk

Hoenn implements a liquidation mechanism to address under-collateralization resulting from validator slashing or underperformance. While the protocol ensures that slashing is isolated to individual user Vaults to avoid cascading effects, it cannot prevent validators/operators from being slashed or performing poorly.

Counterparty Risk

Certain collateral assets used in the protocol, such as WBTC and USDC, are managed by centralized entities, introducing a counterparty risk associated with these organizations. The protocol emphasizes bankruptcy remoteness and the ability to access the underlying assets as key criteria in selecting supported collaterals.