Pool Risk Disclosures for Liquidity Providers

Providing liquidity on AlphaSwap doesn't come without risks. Before making a deposit, it is best to research and understand the risks involved.

• Smart Contract Risk: AlphaSwap relies on smart contracts, which are self-executing pieces of code. While these contracts are designed to be secure, there is a risk that they may contain vulnerabilities or bugs. Malicious actors could exploit these vulnerabilities, resulting in the loss of funds or other adverse consequences. It is essential for users to conduct due diligence and review the smart contracts and security audit reports to assess the inherent risks.

• Immutability and Irreversibility of Transactions: When you engage in transactions on Aleo, it is important to understand that these transactions are immutable and irreversible. Once a transaction is confirmed and recorded on the blockchain, it cannot be modified, reversed, or deleted. This means that if a user sends funds to an incorrect address or engage in a fraudulent transaction, it may not be possible to recover the funds. It is crucial to exercise caution, verify transaction details, and use secure wallets to minimize the risk of irreversible transactions.

• Access Control: AlphaSwap pool smart contracts are intentionally designed to be immutable and noncustodial, meaning they cannot be upgraded and liquidity providers always retain full control of their funds. While this characteristic may limit protective actions in case of emergencies, it significantly strengthens user assurances about custody of their funds.

• Permanent Loss of a Peg: Stablecoins and other derivative assets are designed to maintain a peg to a reference asset. If one of the pool assets drops below its peg, it effectively means that liquidity providers in the pool hold almost all their liquidity in that token. The depegged token may never recover as a result of a technical failure, insolvency, or other adverse situations.If the token fails to regain its peg, liquidity providers will encounter losses proportional to the severity of the depeg. The potential permanent loss highlights the importance of thorough consideration and caution when participating in activities involving stablecoins and/or derivative assets.

• Impermanent Loss: Providing liquidity to AlphaSwap pools may expose users to the risk of impermanent loss. Fluctuations in asset prices after supplying to a pool can result in losses when users remove liquidity. Before engaging in liquidity provision activities, users are advised to carefully evaluate the potential for impermanent loss and consider their own risk tolerance.

• Price Volatility: Cryptocurrencies and ARC20 tokens have historically exhibited significant price volatility. They can experience rapid and substantial fluctuations in value, which may occur within short periods of time. The market value of any token may rise or fall, and there is no guarantee of any specific price stability.The overall market dynamics, including price volatility, liquidity fluctuations, and broader economic factors, can impact the value of user funds when providing liquidity. Sudden market movements or unexpected events can result in losses that may be difficult to anticipate or mitigate.

• Unvetted Tokens: Due to the permissionless pool factory and the absence of strict onboarding criteria, not every token included in AlphaSwap pools undergoes a detailed independent risk assessment. AlphaSwap pools may contain unvetted tokens that have uncertain value or potential fraudulent characteristics. The presence of unvetted tokens introduces potential risks, including exchange rate volatility, smart contract vulnerabilities, liquidity risks, and other unforeseen circumstances that could result in the loss of funds or other adverse consequences. When participating as a liquidity provider in any pool, users should carefully assess the tokens' functionality, security audits, team credibility, community feedback, and other relevant factors to make informed decisions and mitigate potential risks associated with the pool assets.