Risk disclosures

The complete list, in descending order of how much we think you should care. loom removes several classic DeFi risks by construction — and inherits others that no design can remove. Both halves belong on one page.

What loom does not have

No oracle → no oracle manipulation. No liquidations → no cascade risk, no MEV liquidation tax, no "liquidated by a wick" outcomes. No borrow market → no utilization spikes, no funding blowups. These are absent structurally (debt and collateral share a denomination), not by parameter choices that could drift.

1 · Venue risk — the big one

Your principal sits in an external lending venue (Aave V3 today). loom passes that venue through, honestly and completely:

• Solvency: if the venue lost funds, receipts would redeem for less than principal — the loss is yours, pro-rata, with the performance fee waived. loom does not insure it.
• Liveness: redemption requires the venue to honor withdrawals at that moment. A paused reserve or a liquidity crunch delays every redemption until it clears. The T+2 unlock therefore has an unbounded tail in a venue crisis. The receipt market stays open throughout — but expect discounts to reflect the stress.
• The peg connection: lUSD's floor arbitrage assumes redemption is profitable, which holds while venue drawdown stays inside the mint buffer (20% at the 80% cap). A drawdown beyond it would suspend the floor until recovery — see the peg corridor.

2 · lUSD is a corridor, not a hard peg

Read lUSD & the peg corridor in full before holding size. Short version: firm floor priced by two days of carry, soft ceiling priced by minting friction, and a floor that is conditional on venue health. If you need exactly $1.00 at all times, hold the stablecoin.

3 · Admin risk

Today, on testnet, a single admin key can rotate protocol roles — including ones that could mint unbacked lUSD or migrate collateral to a malicious venue adapter. We document this ourselves rather than let you find it in a scanner: see Admin & governance for exactly what the key can do, what it cannot (write-once bindings), and the multisig + timelock structure that gates mainnet.

4 · Smart-contract risk

~850 lines of core protocol, intentionally boring, with 79 passing tests including live venue forks — and still: code is law until it's a bug. The internal review is public, findings and all; mainnet waits for an independent audit. No audit reduces this risk to zero.

5 · Market risks you opt into

• Receipt trading: a listing's value depends on claim math you should verify (the app shows it; the chain confirms it). Prices are your decision — a bad ask is not a protocol failure.
• T+2 carry: between mint and unlock, your claim is exposed to everything above for two more days. Selling early is the hedge, at the market's price.
• LP positions: concentrated liquidity carries impermanent loss and range risk — that's Uniswap, not loom, but you reach it through our desk.

6 · Testnet status

Everything currently runs on Base Sepolia with test funds. Numbers, yields, and points are real mechanics on unreal money. Mainnet parameters may differ; this page will be updated at launch, and material changes will be called out, not buried.