Risks

Nara combines smart contracts with off-chain credit positions, valuation, custody and counterparties. No single control removes those dependencies, and losses or delays are possible. NaraUSD can trade away from $1.00, redemptions can be queued or delayed, positions can lose money, and contracts or operations can fail. Do not treat NaraUSD or NaraUSD+ as cash, an insured deposit, or a guaranteed-return product.

Risks are grouped below by where they originate. Within each group, the first row is the most material.

Credit and settlement

This is where most of the risk sits, because the backing is a credit portfolio.

Risk	What can happen	Who is exposed	Controls
Borrower credit	A borrower cannot repay, repays late, disputes an obligation or suffers business stress	Insurance Fund first, then NaraUSD+, then NaraUSD	Scorecard underwriting, knock-out gates, per-borrower limits, draws capped at 80% to 90% of reported volume, 5-day cure and escalation, originator first-loss tranches where negotiated
Settlement	A payment corridor slows; repayment arrives after the expected window	Liquidity and yield accrual	Settlement-duration and aged-receivable tracking, corridor performance and exception reports
Concentration	One originator, corridor or obligor is a large share of the book, especially during ramp-up	NaraUSD+	Draft limits (7% to 15% single borrower, 35% single corridor), IC approval for any ramp-up excess, breach log
Manager and fund	A third-party fund gates redemptions, changes strategy or loses value	Liquidity and NAV	DDQ, capacity limit, exit plan, redemption terms known at underwriting
Valuation	NAV or reported yield overstates recoverability	NaraUSD+ (mispriced entries and exits)	Realized versus accrued separation, monthly reconciliation, three-stage NAV verification, on-chain mint cap

Liquidity and exit

Risk	What can happen	Who is exposed	Controls
Redemption delay	Requests exceed the liquid buffer; queued redemptions take longer than the 7-day target, up to the roughly 30-day notice period of the longest positions	Authorized Users redeeming, and indirectly all holders	Liquid reserve (20% to 35%), liquidity laddering, ordered on-chain queue, redemption stress tests at 20%, 30% and 50% of supply
Unstaking cooldown	A 7-day cooldown before NaraUSD+ converts; 14 days from NaraUSD+ to stablecoins through the primary route	NaraUSD+ holders	Terms disclosed up front; secondary-market exit available at market price
Secondary price	NaraUSD or NaraUSD+ trades below backing or below the exchange rate on a DEX	Holders selling on secondary venues	Primary redemption at 1:1 for Authorized Users anchors the price; secondary depth is not guaranteed
Stablecoin	A reserve or collateral stablecoin depegs, freezes or becomes illiquid	Backing and redemptions	Single-stablecoin limit of 50% to 70% of NAV, issuer and chain monitoring, emergency conversion procedures

Protocol and administration

Risk	What can happen	Who is exposed	Controls
Smart contract	A bug or exploit in NaraUSD, the staking vault, the OFT layer or a reserve venue causes loss	All holders	Paladin and Cantina audits, allowlisted vault operations, unbacked-mint cap, continuous invariant monitoring, emergency pause, planned bug bounty
Admin and operator	A privileged key is compromised or misused; a signer makes an error	All holders	No single-key privileges; 3-of-5 hardware multisig; maker → reviewer → executor on every action; live-call signing with identity challenges; hard-coded 2-day vetoable timelock on the mint cap; pause-only emergency role
Custody and wallet	A wrong address, an unauthorized transfer, an unreconciled movement	Backing	Whitelisted destinations, enhanced review of address changes, segregated wallets, daily and month-end reconciliation
Omnichain	LayerZero messaging or a destination chain fails or is paused	Holders on the affected chain	Burn-and-mint supply conservation, 3-of-5 governed per-chain configuration, rate limits, cross-chain supply monitoring
Operational	A process, report or reconciliation fails; key-person dependency	All holders	Documented procedures, exception logs, incident runbook, continuity planning

External

Risk	What can happen	Who is exposed	Controls
Legal and regulatory	Product treatment, marketing rules, sanctions or licensing change; access is restricted in some jurisdictions	Users in affected jurisdictions; protocol operations	Panamanian legal opinion (April 2026) covering issuance, staking and the offering; KYC/KYB and restricted-jurisdiction controls; ongoing counsel monitoring. The opinion is jurisdiction-specific, not a global regulatory conclusion
Reputational	A counterparty or borrower fails publicly; communication lags events	All holders	Documented diligence, escalation procedures, facts-before-conclusions disclosure

Risks compound

A corridor disruption can delay repayment, push redemptions onto the liquid buffer, and pressure the secondary price at the same time. The stress scenarios below are designed to show that behaviour rather than assume it away.

Stress scenarios reported to holders

Nara reports these tests as operating data supports them.

Scenario	Example test	What holders should see
Borrower delay	The largest borrower repays 7, 14 or 30 days late	Impact on liquidity, yield accrual, reserves and redemption capacity
Redemption spike	20%, 30% and 50% of NaraUSD requests redemption in one week	Reserve usage, payout timing, any gating logic
Stablecoin depeg	A major stablecoin marks down 1%, 3% or 5%	Reserve impact, conversion actions, waterfall effect
Protocol illiquidity	Reserve-venue withdrawals delayed 3 to 7 days	Immediate gap and alternative liquidity sources
Credit impairment	5%, 10% or 20% impairment of the PayFi book	Loss allocation across the Insurance Fund, NaraUSD+ and NaraUSD

If something goes wrong

Nara communicates facts before conclusions: what happened, what is known, what is not yet known, the immediate control action, and a follow-up timeline. A borrower delay, protocol issue, depeg or wallet incident is not called immaterial before the facts are reviewed. If a process is suspended, a report delayed, new exposure paused or a limit changed, that is stated directly. Material incidents are recorded in the incident log on the Transparency page.

Controls reduce risk; they do not eliminate it

Underwriting, limits, the liquid reserve, the Insurance Fund, multisig and timelock controls, and audits constrain specific failures. They cannot guarantee the value or availability of off-chain assets, the timing of repayment, continuous liquidity, or a fixed return.

Disclaimer	Detail
No insurance	NaraUSD and NaraUSD+ are not insured by any government scheme. The Insurance Fund is protocol capital in first loss, not third-party insurance
No guaranteed returns	Yield is variable and depends on borrower performance, settlement timing, credit losses and the reserve mix
As-is basis	The protocol is provided without warranties, under the Terms of Use
Your responsibility	You are responsible for your own decisions, for sizing positions to your risk tolerance, and for compliance with the laws of your jurisdiction