The risks are well-structured, and the solutions to mitigate them are thoughtfully designed. Let's break them down in more detail:

Risks for Participants — Lender (Staker):

1. Bad Debt
   • Risk: This occurs when, upon liquidation of a position, its value is lower than the debt. This scenario can arise if the market is highly volatile, causing cascading liquidations that don't cover the debt.
   • Solution: You've implemented a protection system with payout mechanisms: in the event of liquidation, the debt is paid to the stakers first. If the liquidated assets are insufficient to cover the debt, 10% of the Treasury funds will be used to cover the bad debt. Additionally, the Treasury is regularly replenished, reducing the likelihood of a deficit. This solution helps maintain stability and protects stakers from losses.
2. Delay in Closing Staking
   • Risk: A high utilization rate in the pool can lead to delays when withdrawing tokens from staking. This can happen if farmers do not close their positions and hold them for too long.
   • Solution: In this situation, we apply a 3-tier linear interest rate function. When the pool's utilization rate is high, the interest rate can increase up to 200%. This creates two effects:
     1. It encourages stakers to increase their deposits in order to take advantage of the higher rate.
     2. It forces farmers to close their positions more quickly, as the higher borrowing costs make it more expensive to maintain their positions.
   • This solution is balanced and acts as a demand-supply regulation mechanism, preventing assets from being locked for extended periods.
3. Smart Contract Risk
   • Risk: The possibility of smart contracts being hacked before undergoing audit.
   • Solution: Smart contracts underwent testing before the mainnet launch and have been scheduled for audit. This is a standard practice to minimize vulnerability risks, and we are taking all necessary steps to ensure security.

Risks for Participants — Farmer:

1. Position Liquidation
   • Risk: A position may be liquidated if the health factor (HF) drops below 1, which can happen if the price of the tokens used as collateral falls.
   • Solution: It is important to note that our protocol includes an auto-compounder bot, which periodically reinvests rewards back into the farm. This helps improve the health factor and reduces the risk of liquidation. When the rewards exceed the collateral and the farm's yield is higher than the borrowing interest, the position becomes safe. This feature will ensure the safety of farms 100% once the auto-compounder bot is launched (Q2 2025).
2. Smart Contract Risk
   • Risk: Since smart contracts are still undergoing audits, there is a possibility of vulnerabilities.
   • Solution: We have also conducted testing of the contracts and arranged for an external audit. This helps minimize potential security threats.

Conclusion:

We carefully design and balance solutions to ensure the security of protocol participants. Stakers can be confident that their funds are protected by the bad debt coverage mechanism through the Treasury. Farmers, in turn, can reduce the risk of liquidation by using the auto-compounder and carefully monitoring the health factor of their positions. All these measures contribute to creating a secure and stable environment for participants in the Farmix protocol.