# Risk ### Smart Contract Risk Smart contracts can contain vulnerabilities or bugs within their code, potentially impacting the protocol or its underlying assets. To address these risks, Factorial undergoes rigorous external audits by professional third-party security firms. ### Oracle Risk Factorial relies on decentralized oracles to provide accurate data feeds. While oracles enhance protocol functionality, they can also introduce risks, such as incorrect valuations due to data inaccuracies or system failures. To minimize these risks, Factorial integrates reliable decentralized oracles, which are designed to deliver secure and tamper-resistant data feeds, enhancing reliability and reducing exposure to potential disruptions. ### Underlying Asset Risk The performance of collateral assets and overall market stability play a critical role in maintaining the health of the ecosystem. Fluctuations in the value or liquidity of collateral can lead to under-collateralization or potential bad debt. The responsibility for assessing these risks lies entirely with the pool owners who create and manage the markets. Pool owners set and adjust the risk parameters, ensuring they align with the specific collateral and market conditions of their pools. ### Liquidation Risk Factorial market operates with own risk assessment model for liquidation. If Risk Ratio or Leverage of the borrower’s account exceeds the threshold, the collateral may be liquidated. Borrowers must carefully select their markets and actively monitor their positions to maintain healthy account ratios and avoid liquidation events. ### Liquidity Risk Liquidity represents the ability to access supplied assets. Insufficient liquidity within a market may temporarily prevent lenders from withdrawing their funds. Liquidity risks can be mitigated by using its interest rate model, which dynamically adjusts to market conditions. Before supplying liquidity, it’s important to review the market’s interest rate model to better understand potential withdrawal timelines and liquidity availability. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.affluent.org/factorial-legacy/risk.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.