The Shroomy Protocol is designed with risk management as a core principle. This documentation outlines the key risks associated with the protocol and the mechanisms implemented to mitigate them. Understanding these risks is essential for all participants in the Shroomy Project ecosystem.
Smart contract risk refers to the potential for vulnerabilities in the protocol’s code that could lead to unexpected behavior or loss of funds. To mitigate this risk, ShroomyProject implements:
Multiple independent security audits before deployment
Formal verification of critical components
Bug bounty programs to incentivize responsible disclosure
When a borrower’s health factor falls below 1, their position becomes eligible for liquidation. This process ensures the protocol remains solvent even during extreme market conditions:
Liquidators repay a portion of the outstanding debt
In return, they receive discounted collateral (liquidation bonus)
Gas costs must be considered when evaluating liquidation profitability
A portion of the interest paid by borrowers is set aside as a reserve for the protocol. This creates a safety buffer against potential shortfalls and supports long-term sustainability.
The liquidation bonus is the discount liquidators receive when purchasing collateral during a liquidation event. This incentivizes rapid restoration of protocol health.
Risk management is a shared responsibility among all participants in the Shroomy Project ecosystem. By understanding these risks and following best practices, users can make informed decisions while contributing to the overall stability and success of the protocol.