Risks & Mitigations

While ZonaLend is built with strong security measures, every protocol carries risks. Below are the main risks users should be aware of, together with the mitigations Zona has implemented.

Market & Price Volatility Risk

Crypto-native assets (LSTs, LRTs, perp LP tokens, volatile tokens) can experience sharp price movements. RWAs may be affected by offchain events (e.g. interest rate changes, tokenization issuer issues). Both collateral types may also face liquidity crunches.

Mitigation

Zona will assess each supported asset based on liquidity, volatility, backing, and set maximum LTV ratios accordingly (typically 50-80% depending on the asset)

Isolation mode for higher-risk or lower-liquidity assets, such that a singular asset does not affect others on ZonaLend

Users should gauge their risk appetite and only borrow/loop amounts they are comfortable with. Users should note that even assets that are traditionally stable may face extreme price movements during liquidity crunches.

Liquidation Risk

If the Health Factor (HF) of a user's position falls below 1.0 (due to collateral price drop or rising borrow rates), part or all of the collateral can be liquidated at a discount, resulting in a loss for the user.

Mitigation

Zona displays clear, real-time HFs on our lending dashboard that users can use to actively monitor their current risk

If a user wishes to use a passive investing approach without frequent monitoring, they should set more conservative safety buffers with higher HFs to prevent sudden liquidations in the event of a liquidity crunch

Oracle Risk

Inaccurate or delayed price feeds could lead to incorrect HF calculations, resulting in unfair liquidations.

Mitigation

Zona aims to use a multi-oracle setup wherever possible, eliminating a single point of failure from potentially faulty oracles

Deviation checks and circuit breakers if price sources diverge significantly

Smart Contract Risk

Bugs or vulnerabilities in the protocol code could lead to loss of funds.

Mitigation

ZonaLend leverages the battle-tested, audited foundation of Aave V3, inheriting its strong security guarantees.

Beosin, a reputable third-party smart contract security firm, has completed an independent audit on ZonaLend (reports linked in documentation)

Asset-Specific Risks (especially RWAs & exotic tokens)

Issuer or redemption risk for RWAs

Low liquidity or high volatility for certain perp LP tokens or new RWAs

Regulatory changes affecting tokenized assets

Mitigation

Gradual rollout of new assets with strict monitoring and due diligence on liquidity, volatility, asset issuance/redemption processes, etc. ZonaLend aims to onboard premium and battle-tested assets first.

Isolation mode with borrow caps for higher-risk assets

General Advice for Users

Start with small positions to become familiar with the mechanics

Use conservative leverage and maintain a safety buffer above the minimum HF prior to liquidation

Monitor the HF regularly, especially during volatile market conditions

Diversify collateral across multiple asset types

ZonaLend is designed with multiple layers of protection, but DeFi always involves risk. Users should only deposit assets they can afford to lose and perform their own research.