Risk Disclosure

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Smart contract risk

All DeFi protocols carry smart contract risk. Even with audits and testing, bugs can exist. What this means for you:

• Code bugs could lead to loss of funds
• Immutable contracts cannot be patched (see Trust Assumptions)
• Audits reduce but do not eliminate risk

Mitigation:

• Contracts are audited (see Audits)
• Contracts are open source and verified on block explorers
• Do not deposit more than you can afford to lose

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Oracle and pricing risk

Varla uses a push-based oracle. An off-chain service pushes prices to on-chain contracts. What this means for you:

• If the oracle pushes incorrect prices, you could be liquidated unfairly
• If the oracle stops updating, some actions may be blocked
• Conservative pricing (min of spot/TWAP) reduces but does not eliminate manipulation risk

Mitigation:

• On-chain staleness checks reject stale prices
• Liquidation grace windows protect against sudden price recovery
• Decentralized oracle planned (see Trust Assumptions)

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Liquidation risk

If your health factor drops below 1.0, your collateral can be liquidated. What this means for you:

• Market moves can trigger liquidation
• Gas spikes can delay your repayment transaction
• You may lose collateral + pay a liquidation bonus to the liquidator

Mitigation:

• Monitor your health factor
• Keep buffer (don’t borrow to the maximum)
• Set up alerts for health factor changes

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Liquidity risk (lenders)

If the pool is highly utilized, lenders may not be able to withdraw immediately. What this means for you:

• Withdrawals are limited by available liquidity
• maxWithdraw / maxRedeem reflect real-time limits
• You may need to wait for borrowers to repay

Mitigation:

• Monitor pool utilization before depositing
• Do not assume instant withdrawals

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Platform dependency risk

Varla operates on top of prediction market platforms (Polymarket, Opinion). What this means for you:

• If the underlying platform has issues, Varla may be affected
• Market resolutions are controlled by the underlying platform, not Varla
• Token standards (ERC1155, CTF, NegRisk) are dependencies

Mitigation:

• Understand how the underlying platform works
• Varla has no control over market outcomes or platform operations

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Regulatory risk

DeFi and prediction markets exist in an uncertain regulatory environment. What this means for you:

• Regulations may change
• Access may be restricted in some jurisdictions
• Tax implications vary by jurisdiction

Mitigation:

• Understand your local regulations
• Consult a tax professional
• Varla does not provide legal or tax advice

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Summary

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Questions?

If you have questions about risk, reach out:

• Discord: discord.gg/varla
• Security issues: security@varla.xyz