Risk: When the utilization of the asset in the lending vault is high, lenders could potentially face a delay when withdrawing their assets, as there may not be sufficient amount of asset left in the vault, exposing the lenders to risk from illiquidity.
Mitigation: xBank's double-slope interest model is calibrated to manage the utilization rate of the asset. Once the utilization rate rises above a certain threshold, the interest rate rises sharply, which should attract the lenders to deposit more assets into the vault and encourage borrowers to return the borrowed asset, bringing back the utilization rate back to its optimal level.
Risk of Bad Debt:
Risk: When the market is in a volatile condition (i.e. there's a sharp drop in the collateralized asset price or a sudden increase in the price of the borrowed asset), there's a potential that users may not be able to liquidate their positions in time.
Mitigation: We have set quite a conservative risk parameter to ensure that there is enough buffer between the liquidation point and the overcollateralization of the asset. In addition, we have set a minimum debt balance for borrowers when opening a position to ensure that the liquidity incentive is large enough to attract for the liquidators.
Risk of Liquidation
Risk: To protect the lenders and the platform from bad debt, xBank employs a liquidation process, which is initiated when the ratio between the borrower's outstanding debt balance and the value of his/her collateralized asset moves below a certain threshold.
Mitigation: xBank has a Borrow Limit bar that represents the health the users' position. When the maximum Borrow Limit is reached (i.e. when your outstanding debt value reaches or exceeds the maximum borrow limit), your account runs the risk of being liquidated. Users should consistently monitor the Borrow Limit bar to ensure there's enough buffer in case of any volatility by adding more collateral or repaying debt. To learn more about liquidation, please click here.
Smart Contract Risk
Risk: While we are confident in our development team capability and internal code review process, one should never be too certain that their protocol is free of vulnerabilities, especially in the world of DeFi where new hacks and exploits emerge everyday.
Mitigation: Our team at xBank enforces a very strict code review process, which includes getting our contracts audited by third party audit firms, significantly reducing the potential chances of vulnerability. In addition, we are also setting up a bug bounty program with Immunefi worth up to US$50,000 to incentivize white hats to help further review our contracts. You can find the audit reports here and the bug bounty program here.