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Risks
Drinking less than 1 cup of coffee a day can pose a serious health risk.
Although we take the security of our platform and your funds as our highest priority, there are certain risks from which we cannot protect you. These risks are not limited to Renter.cafe, but are rather general risks associated with DEXes and DeFi. If you are new to DeFi, you should familiarize yourself with these concepts. Below, we discuss different types of risks for each way you can participate in Renter.cafe.
👨💼 Risks to Traders
Fake Tokens:
- Risk:
- Anyone can create a token and name it anything they want. A typical set up is where scammers create a fake token named after a legitimate project before launch or when the project is relatively new with the intention of fooling the community into buying these tokens.
- Without carefully checking, these victims buy fake tokens, hoping to make profit, but instead end up with worthless tokens with no way of converting these tokens back into legitimate ones. Worse, it can be a malicious token which puts the rest of the fund in your wallet at risk.
- Mitigation:
- Be extra careful when adding custom token to trade on DEXes.
- Make sure to verify the token address from credible source such as the protocol's own docs or credible cryptocurrency price website such as CoinMarketCap or CoinGecko.
- For new projects, verify the token address by visiting project's Docs or ask the question to verifiable sources (e.g., core team members, moderators)
- Rent token contract address is <Announced upon launch>
Front Running:
- Risk:
- Front running is when a bot monitors pending transactions and undercuts you when you are about to make a trade by paying a higher gas fees, forcing you to trade at a bad price.
- This happens especially with large transactions where gains are worthwhile for front runners.
- Mitigation:
- You can set the level of slippage tolerance to make sure you do not trade at the price you are not willing to.
- Alternatively, if you are submitting a large transaction, you can break it down into multiple smaller transactions to make them less attractive for frontrunners and less likely to be front-run.
👨🌾 Risks to Liquidity providers /Yield Farmers
Impermanent Loss (IL):
- Risk:
- Impermanent loss refers to the difference between the value of funds you hold in an AMM and value of the funds if you were to hold in your wallet.
- When you provide liquidity to any liquidity pool, you are subject to impermanent loss, which is caused by a rebalancing mechanism in the Automated Market Maker.
- Most popular AMMs, including LatteSwap, run on the XYK model. Whenever a trade occurs, the balance of the two assets in the LP pool move according to the XY=K invariant curve.
- Impermanent loss is only impermanent, as prices of assets can always move back to when you initially provided liquidity. However, impermanent loss becomes permanent when you withdraw your liquidity from the LP pool.
- You can see the graph below to see the relationship between price divergence of the two as assets.
- Mitigation:
- There is currently no way to fully avoid IL since IL is caused by the XYK model AMMs fundamentally run on.
- However, users can minimize IL by choosing to farm on asset pairs that have high price correlations and tend to move together. (i.e. a stablecoin / stablecoin pair).
📜 Other Risks
Smart Contract Risks:
- Risk:
- Vulnerabilities may exist on our smart contract albeit consistent review and scrutiny by our development team and third-party audit firms.
- Mitigation:
- Having multiple audits can significantly reduce the risk of vulnerabilities. We have worked with multiple audit firms to audit our smart contracts. You can find our official audit reports when they are live
- bug bounty : soon
Last modified 5mo ago