Risks

KEY INVESTOR INFORMATION: This document provides you with key information about this Leveraged Staking product and the risks involved. It is not marketing material. The information is required to help you understand the nature and risks of investing in this product.You are advised to read it so you can make an informed decision about whether to invest.

IMPORTANT INFORMATION: CAPITAL AT RISK The value and income of investments in the following product can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

IMPORTANT INFORMATION: Investments in the leverage staking product are subject to market fluctuations. The value of your investment, as well as the income derived from it, can increase or decrease. There is no assurance of recovering the initial investment amount. It's crucial to understand that decentralized finance (DeFi) lending products, including those offered on permissionless blockchains, operate independently of Mango Markets DAO.

This leverage product, known as yield.fan, allows users to deposit JLP and SOL liquid staking tokens (LSTs), to be used as collateral in the borrowing of USDC (if leveraging JLP) or SOL (if leveraging LSTs) at a variable interest rate. The USDC or SOL is used to purchase additional tokens, creating increased exposure.

The product entails various fees, including variable collateral fee rates (if leveraging JLP), loan origination fees, and variable loan maintenance fees. The value of your position is directly affected by changes in the USDC or SOL interest rate and the market value of the deposited tokens. Typically, an increase in borrow interest rates, or a decrease in value of the deposited tokens, will lead to a decrease in the value of your position, potentially resulting in liquidation.

This leverage staking product relies on external oracles to provide real-time price feeds for deposited tokens, USDC and SOL. These oracles are essential for ensuring accurate collateral valuation. However, investors should be aware that oracle data is subject to risks of manipulation, delay, or inaccuracies. Such issues with oracle feeds can lead to improper valuation of deposited assets, potentially triggering unintended liquidations or affecting the overall performance of your investment.

Investors should also be aware of the inherent smart-contract risks associated with this product. These risks include, but are not limited to, vulnerabilities in the contract code that could potentially be exploited, leading to financial loss.

Please consider these risks carefully before using yield.fan

1. Why add leverage to JLP or LSTs?

Increased Exposure and Returns: Amplifies investment in JLP/LSTs, leveraging USDC/SOL to enhance yield potential and market position without the need for extra capital.

2. Why Not add leverage to JLP or LSTs?

Risk of Liquidation: High volatility in the JLP/LST and USDC/SOL market can rapidly depreciate collateral value, triggering liquidations and potential loss of investment.

3. Adding leverage

Adding leverage offers a significant advantage by amplifying investors' exposure to JLP/LSTs and their associated yield through USDC or SOL borrowing, which facilitates the acquisition of additional amounts of JLP or LSTs, enhancing potential gains. This strategic leverage allows investors to expand their market position and potentially increase returns without the need for additional capital investment upfront. The product operates within a framework of carefully calibrated risk parameters, managed by the Mango DAO, to balance growth opportunities against the inherent risks of the JLP/LST and USDC/SOL markets.

However, this increased exposure is not without its costs. The primary risk associated with leveraging investments in this way is the heightened potential for liquidation. In volatile market conditions, the value of collateralized assets can rapidly decline, possibly triggering liquidations to cover outstanding liabilities. Moreover, the mechanism of leveraging and the associated costs and fees of borrowing, introduce additional costs that can impact the overall profitability of investments.

It's critical to carefully evaluate the balance between the benefits of increased exposure to underlying assets and the risks of liquidation, losses, and fees. The high-risk nature of leveraged cryptocurrency products demands a thorough understanding of market dynamics and risk management strategies to navigate potential downturns effectively

4. JLP token

JLP (Jupiter Liquidity Provider) tokens are assets that users receive when they become liquidity providers on the Jupiter Perpetuals platform. Holding JLP allows users to earn a portion of the fees generated by the platform, with the token's value and yield being dynamically influenced by trading activities and market conditions. JLP is a native Solana Program Library (SPL) token. It represents a significant component of the platform's liquidity provision, directly linking holders to the platform's financial ecosystem and its associated risks and rewards.

The value of JLP tokens is closely tied to the operational dynamics of the Jupiter Perpetuals platform. It reflects a share in the pool containing the trading fees generated, trader's profit and loss and 70 percent of generated fees. Inspired by GMXv1, JLP's worth increases with the platform's trading volume and fee generation, offering holders a direct stake in the platform's success. This dynamic pricing mechanism ensures that JLP holders benefit from the platform's financial activities.

The current composition of the JLP pool reflects a mix of major cryptocurrencies, including SOL, ETH, WBTC, USDC, and USDT, each with specific target allocations and utilization rates. Target rates in the JLP pool ensure that the pool remains diversified and resilient to market volatility. While offering a mix of low volatility and high yield, JLP represent a high risk investment due to potential smart contract vulnerabilities and market-related risks. As an index fund of major cryptocurrencies, JLP provides broad exposure, diversifying portfolios but also introducing complex market risks.

5. Objectives and Policy

• yield.fan augments the investor's exposure to the deposited tokens by leveraging USDC or SOL borrowing to finance the acquisition of additional amounts of the deposited asset, which is designated as "Collateral".
• The magnitude of USDC or SOL leveraged and the volume of deposited assets acquired are predicated on specific risk parameters, notably the "Initialisation" asset weight of the deposited tokens. The Mango DAO exercises governance over this critical parameter, adjusting it in accordance with their risk management strategy.
• When adding leverage to JLP the collateral of deposited tokens is subject to a fixed rate fee, which is imposed in direct proportion to the extent of the collateral that is secured by outstanding liabilities. In the context of liquidations, a distinct and typically lower value, known as the "maintenance asset weight", comes into play, representing the "weighted assets" threshold for triggering liquidation.
• The USDC and SOL borrow rates are dynamically adjusted based on the total volume of USDC/SOL borrowed and deposited across the platform, adhering to an exponential curve. This mechanism ensures that the borrow rate increases with the aggregate borrowing activity, influencing the cost of leveraging and the overall economic incentives for borrowers and depositors alike. This rate adjustment strategy is crucial for managing liquidity and risk on the platform.
• The effectiveness of leveraging JLP and the associated USDC borrowing rates are directly influenced by USDC deposits, a distinct service on the platform designed for USDC lending. The interplay between JLP leverage and deposited USDC underscores the importance of understanding the inherent risks of deposited USDC when utilizing JLP for investment strategies. JLP and USDC are isolated from the LST pool.
• A liquidation event is initiated when the combined value of the borrowed USDC or SOL, along with the accumulated interest, surpasses the "weighted assets" value. This mechanism ensures that USDC depositors are prioritized for reimbursement in the event of a market downturn.
• The aforementioned risk parameters, such as the "Initialisation" asset weight, play a crucial role in the determination of both the borrowing capacity and the purchasing power regarding the deposited assets, underlining the significance of the Mango DAO's oversight.
• Recommendation: Investors should be cognizant of the High Risk nature of this product. The cryptocurrency markets are characterized by their extreme volatility, which can lead to abrupt and unanticipated liquidations, thereby posing a substantial risk to capital.

For more information on yield.fan, risks and charges please contact https://discord.gg/pV5mybZYY8

6. Interdependence with deposited USDC

The "Leveraged JLP" product intricately relies on the deposited USDC, serving as a mechanism for deposits within the ecosystem. Specifically, USDC deposits are a critical component in enabling the leveraging of JLP. This interdependence underscores a strategic approach to liquidity management and leverage within the platform, where the availability and conditions of USDC deposits directly influence the operational dynamics of leveraged JLP. As such, users engaging with JLP are implicitly interacting with the underlying mechanisms and risks associated with the deposited USDC.

7. Charges

The charges are used to pay the costs of running the product, including the costs of marketing, development and distributing it. These charges reduce the potential growth of your leverage position, and increase the likelihood of liquidation. At any point in time, Mango DAO can choose to increase, decrease or remove fees:

• Loan Origination Fee: This is a one-time fee applied to the USDC or SOL borrowed, which increases the borrower's liabilities. It typically ranges from 1 to 100 basis points.
• Loan Fee Rate, This represents a percentage fee applied to the USDC or SOL borrowed, also contributing to an increase in liabilities. The fee rate falls within a 0-10 percent Annual Percentage Rate (APR).
• Collateral Fee Rate, This is a percentage fee for adding leverage to JLP and other LSTs, assessed on the collateral deposited by the borrower. It fluctuates based on the ratio of weighted liabilities to weighted collateral, affecting the overall cost of borrowing.
• Swap Fees, When positions are initiated by swapping USDC or SOL for a derived token through the most efficient route, swap fees may be incurred as part of the slippage. This fee affects the cost and efficiency of the transaction.

8. JLP and LST Specific Risks

8.1 Disclaimer on Jupiter Token Management

It is important for users to understand that the platform does not have any control over the management, performance, or operational strategies of JLP or any of the LSTs. Users should conduct their own due diligence and assess the risks involved when engaging with these tokens. We accept no responsibility for any financial outcomes related to the fluctuation in value, liquidity, or regulatory changes affecting these tokens.

8.2 Risks Associated with Accepting JLP/LST Deposits

• Value Fluctuation Risk: The value of JLP/LSTs can be highly volatile, affecting the collateral value of loans.
• Smart Contract Risk: Potential vulnerabilities in the JLP/LST smart contract could lead to loss of funds.
• Market Risk: Changes in the overall crypto market could disproportionately affect the JLP/LSTs liquidity pools, impacting the tokens stability and value.
• Regulatory Risk: Changes in regulatory landscapes may affect the operation of liquidity pools and the usability of JLP/LSTs as collateral.

9. General Risks

The below describes the potential risks faced by users categorized into general risks, platform-specific risks, and market operation risks

• Legal and Taxation Risks: Users are responsible for understanding and complying with the legal and tax implications of their actions within Mango Markets.
• Market Risks: Market prices are subject to rapid and unpredictable changes. Historical trends do not guarantee future performance.
• Unknown Risks: Additional, unspecified risks may exist, affecting users' experiences and outcomes

9.1 Platform-Specific Risks

Solana Network Risks: Solana's architecture, designed for high throughput and low transaction costs, faces challenges that can impact users on the platform. Key areas of concern include:

• Wallet Loss: The decentralized nature of blockchain technology means that wallet security is paramount. Users losing access to their private keys will find themselves permanently unable to access their funds, with no centralized authority to facilitate recovery.
• Infrastructure Risks: The Solana network is not immune to downtimes or degraded service quality. These can arise from various factors, including network congestion, protocol upgrades, or malicious attacks. During such downtimes, users may experience delayed transactions, inability to access their funds, or temporary loss of platform functionality. Extended outages could lead to significant disruption, affecting trading strategies and access to assets.

9.2 Oracle Provider Risks

The use of oracle providers like Switchboard and Pyth introduce several risks, necessitating a thorough understanding for informed decision-making. Key points include:

• Accuracy and Reliability: Oracle providers are responsible for delivering accurate and timely data feeds. Any discrepancies or delays in data can affect trades, liquidations, and the stability of the market.
• Customization and Community Governance: Switchboard is a permissionless, customizable, multi-chain oracle network that relies on community governance to curate and manage data feeds. While this democratizes data provision, it also introduces variability in the quality and reliability of the data, depending on community engagement and oversight.
• Technical Risks: The complexity of managing oracle queues, running local oracles for testing, and integrating with smart contracts introduces technical risks, including potential vulnerabilities or misconfigurations that could be exploited.

9.3 Disclaimer on Oracle Management

It is crucial for platform users to acknowledge that yield.fan does not control or manage the oracle services provided by Switchboard, Pyth, or any other third-party oracle providers. As such, we are not liable for any discrepancies, inaccuracies, or failures of the oracle services. In the event of data inaccuracies provided by these oracles, our platform will proceed with liquidations or other contract executions based on the received data, underscoring the importance of users' awareness of these oracle provider risks.

10. Specific Risks

The "yield.fan" products within the Mango Markets ecosystem, designed to enhance user engagement through leveraged positions and liquidity provision, carry their own set of specific risks. These risks stem from operational complexities, market volatilities, and dependencies on external services. Understanding these risks is crucial for participants to navigate the platform effectively and mitigate potential losses.

• Operational Risks: Bugs or vulnerabilities in the deployed Mango program or governance mechanisms could lead to incorrect behavior or loss of funds.
• Liquidation and Socialized Loss Risks: Market conditions can trigger liquidations, potentially leading to cascading market impacts and socialized losses under certain conditions.
• Service and UI Risks: Reliance on external services and user interfaces may introduce additional vulnerabilities, including data accuracy and access issues.