Defrost Finance


Using Defrost V2 protocols doesn't come without risk. Before you decide to deposit your assets in the protocol or trade on leverage you should do your research and understand the risks involved.
This section will only give an overview of the main risks associated with the protocol. If you'd like to dive deeper, you can check out the smart contracts on Defrost's Github.

Smart Contract Bugs

The core Defrost protocol contracts have been audited. However, security audits do not completely eliminate smart contract risk. We urge you not to put your life savings or money you can't afford to lose into the Defrost protocols.

Liquidation Failure

The non-loss nature of Super Vaults is reliant upon the timely and successful liquidation of risky positions that fall out of the minimum collateral ratio. However, significant risks can be associated with specific underlying assets themselves. If the values of the underlying assets drop too quickly, liquidation might not be enough to cover the full amount that was borrowed.
At this particular time, the liquidators may be reluctant to exercise liquidation, as the liquidation rewards may not be enough to cover the potential risks, considering the increased gas costs and conjunctions. Or the public chains may be too jammed to timely process the liquidation transactions.
These occurrences may lead to liquidation failure and can cause the collateral to be insufficient to back the leveraged positions.

Composability Risks

Defrost V2 enables users to stake their assets in super vaults to earn passive yields. Also, the liquidity of leverage trades relies on third-party DEXes on Avalanche. In other words, the Defrost protocols are composable in nature, with smart contracts interacting with one another in some form. The safety of such operations relies upon the stability of the integrated DeFi protocols. Smart contract failure in one of the core components could cause a ripple effect throughout the Defrost protocols.
This means that smart contract failure on the base layers could lead to loss of funds in the protocols or applications that are built on the higher layers, like Defrost Protocols.
For all these reasons, we urge users not to invest funds they cannot afford to lose and kindly remind them that they are using the defrost products at their own risk.