2.6. Risk Exposure

2.6.1. Debt Collateralized Position (CDP) and Collateralized Risk

LiquidPrime's Collateralized Debt Position, hereafter referred to as CDP, is a type of loan, and LiquidPrime is provided through the Solana blockchain program. Initial Liquid Prime is based on SOL and provides wrapped SOL by minting it as iSOL, and iSOL limits the exchange to follow the price of SOL and fixes the exchange rate. However, the value of this collateral asset is relatively exposed to price volatility because the loan asset, USDC, is a USD stablecoin. The borrower is aware of this and has an obligation to manage it so that it does not reach the liquidation threshold.

2.6.2. Risks of owning a CDP

Holding a CDP means that while you have the opportunity to make a profit from an increase in the price of the underlying asset, you are essentially taking risks. This is because, in addition to incurring liabilities, you are putting your assets into smart contracts that can automatically liquidate and sell them if the market crashes. The risks that can arise from using a CDP fall into four broad categories - market risk, user risk, system risk, and variable volatility risk.

2.6.2.1. User Risk

Due to the nature of transactions on the block chain being irreversible, there is no function to reverse the transaction for assets that have been incorrectly deposited by the user. Users should be aware that they are used at the full responsibility of the user.

2.6.2.2. Market Risk

When you open a CDP position, you deposit your assets in a smart contract that can be automatically liquidated and sold in the event of an unexpected market crash. It is also an investment technique that uses high leverage, but it is important to recognize that the risk of loss is greater.

2.6.2.3. System Risk

Liquid Prime is always exposed to the following risks to systemic risks despite applying various security based on objective indicators, and there are also unspecified risks.

• Discovery of smart contract vulnerabilities and hacking attacks using them

• Unpredictable circumstances for deposited assets

• Unpredictable situations due to irrational behavior of the market

• The balance of decentralization is unpredictable due to the takeover of authority of a specific node or centralized branch

2.6.2.4. Variable Volatility Risk

The risk of CDP holders should be recognized that the following variables may be changed by the Master Node's decision to ensure the stability and sustainability of the system.

• CDP opening fee

• Liquidation threshold

• Request for repayment due to change in collateral value

• Liquidation penalty