What are the risks associated with lending on Nuo?Last Updated: August 23, 2019
Nuo is non-custodial and every transaction is on-chain. There is no counterparty risk associated with lending using Nuo smart contracts which are usually associated with centralised lending. Since all loans are collateralised, this reduces the risk of lending on Nuo drastically as well since all loans are margin called with a 10%-15% buffer.
Lending on Nuo mainly has 2 risks associated with it - the smart contract risk and flash crash or flash surge risk.
The smart contract risk is mitigated by ensuring that smart contracts are secure and do not have vulnerabilities to access funds from the contract. This is done by following the best practices and auditing the smart contracts from reputed auditors. All Nuo contracts are audited by Quantstamp which is one of the most well-known auditing firms in this space.
The price volatility risk associated with a flash crash or flash surge is reduced by ensuring that we have a robust, tested and secure price oracle which feeds the right price to the contract at all times. We have also added a buffer to safeguard the lenders further. If a flash crash or flash surge leads to network congestion then on-chain confirmations and transaction finality are delayed which may lead to excess loss of collateral value. This may lead to a loss for the lenders in such cases.
We have proposed an insurance fund for such cases using which lenders can insure themselves against such price volatility and network congestion by contributing some portion of their gains to this fund which can be used to cover loses partially or completely.