This page includes a non-exhaustive list of risks you incur by depositing funds into a Babylon Garden.
Babylon integrates with several DeFi protocols (Aave, Kyber, Yearn, etc.) to offer a wide range of investment opportunities. However, this makes us vulnerable to risks in the underlying protocols.
For example, an integration may lose capital due to a digital breach; although we have designed the protocol to compartmentalize these risks, making them very unlikely, they may occur and could have detrimental effects. These risks carry varied outcomes of severity and impact.
Babylon is built on top of Ethereum and as such, is vulnerable to bugs or hacks in the Ethereum Virtual Machine or EVM. This is an extremely unlikely event, which would also collapse the value in the whole ecosystem but it can happen.
Our users and customers may be hacked via malicious digital exploits. If the user's OS or browser is compromised, this could generate a loss of funds or, at the very least, negatively impact our application.
Our frontend could have bugs and/or digital breaches that may result in miscalculations, loss of user's funds, and/or prevent users from accessing the protocol. Withdrawals and deposits may be halted as these issues could effect the viability of the platform.
Right now, risk-free interest rates in DeFi are really high. We expect these numbers to trend lower in the following years although we expect them to remain considerably higher than the rates available in traditional finance. If the numbers become commoditized quickly and the transaction costs increase, many investment opportunities in DeFi wouldn't be as profitable. This can effect the long-term viability of the platform.
Malicious Garden Takeovers
Gardens may be controlled by large capital manipulation. Although these kinds of attacks are highly disincentivized by our mechanism and design, individuals willing to pay a high price could take over a Garden and activate investment Strategies that could result in the loss of a user's capital investment. Similar to a 51% attack in Bitcoin, engaging in this type of exploit is a negative-sum game where both the attacker and the members of the community would lose capital.
Smart Contract Risks
Although we do our best to employ the best security practices, there is always a risk that Babylon suffers a digital breach that could compromise user capital. It is also possible for an attacker to compromise the Babylon governance system and change protocol parameters or upgrade the main controller with the goal of accessing capital from our users.