Risks
A Transparent Approach to Risk Management
All investments and financial protocols carry inherent risks. At Nara, we are committed to providing our users with a clear and transparent understanding of the potential risks involved and the measures we have taken to mitigate them. This section outlines the primary risks associated with the Nara protocol and our strategies for managing them.
Risk Categories
The risks associated with the Nara protocol can be broadly categorized as follows:
Credit Risk
The risk of default by the payment financing counterparties.
Liquidity Risk
The risk that the protocol may not have sufficient liquidity to meet redemption requests in a timely manner.
Smart Contract Risk
The risk of bugs or vulnerabilities in the protocol's smart contracts that could be exploited by malicious actors.
Operational Risk
The risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events.
Regulatory Risk
The risk that changes in laws or regulations may adversely affect the protocol or its users.
Mitigation Strategies
Nara employs a multi-faceted approach to risk management, with specific strategies in place to address each of the risk categories:
Credit Risk Mitigation
Rigorous Partner Due Diligence: As outlined in the 'Nara's Asset Manager section, we conduct extensive due diligence on all our PayFi partners to ensure their creditworthiness and operational integrity.
Diversification: We diversify our investments across multiple PayFi partners and a wide range of underlying payment flows to minimize the impact of any single default.
Overcollateralization: In some cases, we may require our PayFi partners to provide collateral to further secure the financing.
Liquidity Risk Mitigation
7-Day Redemption Period: The 7-day redemption period for unstaking NaraUSD+ allows the protocol to manage its liquidity in a predictable and orderly manner.
Liquidity Buffers: We maintain a portion of our reserves in highly liquid stablecoins to ensure that we can meet redemption requests even during periods of high demand.
Secondary Market Liquidity: We are working with partners to provide a liquidity facility on a DEX for users who wish to redeem their NaraUSD and NaraUSD+ instantly.
Smart Contract Risk Mitigation
Audits: The protocol's smart contracts undergo regular audits by reputable third-party security firms to identify and address potential vulnerabilities.
Bug Bounties: We plan to launch a bug bounty program to incentivize security researchers to find and report vulnerabilities in our codebase.
Best Practices: Our development team follows industry best practices for secure smart contract development.
Operational Risk Mitigation
Institutional-Grade Custody: We use institutional-grade custody solutions, such as Hex Trust, to safeguard the protocol's assets.
Multi-Signature Wallets: Critical protocol functions are controlled by multi-signature wallets to prevent unauthorized access.
Contingency Planning: We have developed contingency plans to address a variety of potential operational disruptions.
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