Like any borrowing with leverage, Alpha Homora has its own risk. Below is the outline of some risks each protocol user may face.
1.Yield Farmers and Liquidity Providers (no leverage or in the other words 1x) are exposed to impermanent loss risk. See more about impermanent loss here.
Note: This is the same risk as participating in other yield farming or liquidity providing opportunities in AMM pools.
2. Leveraged Yield Farmers and Liquidity Providers (more than 1x) also take the risk of being liquidated because Alpha Homora will borrow ETH to yield farm or provide liquidity on leverage for you when taking on leverage position. Liquidation takes place when Debt Ratio (debt / position value) reaches Liquidation Debt Ratio, e.g. 80% for ETH/DAI pool, which can take place when your position value (in ETH) falls. Position value falls when the price of another token (e.g. DPI for DPI/ETH pool) significantly drops significantly compared to ETH or ETH price significantly increases compared to another token.
*See Key Parameters section to learn what the Liquidation Debt Ratio is for each pool is.
3. ETH Lenders share the risk of debts accrued by underwater positions in case liquidators did not liquidate in time.
Note: This has not happened before.
4. Liquidators & Bounty Hunters take the risk of being front-run by other competitors, to get reward bonus from liquidations or reinvest bounties. If front-run, liquidators and bounty hunters pay gas fees for free (likely at high gas prices).
A more detailed risk analysis can be found here!