Every investment (even the most conservative one) has some degree of risk. Take the 2008 housing crisis for example. Housing was deemed the safest investment you could make…until it wasn’t.
But, investing your money is the only practical way to reach financial freedom. So you need to be smart - that means understanding investment risks and how much you can tolerate them. Like all other investments, DeFi & Burst Secure come with its own unique risks. There are three main risks you need understand - lending, partner, and stablecoin. Here's what they mean for you:
1. Lending Risk. We lend your money to borrowers. But what if our borrowers can’t repay our loan & default on it? In short, they can't. Each loan we give out is backed up by at least 125% collateral. The borrowers put their collateral into protocols (like Compound) which automatically run and cannot be changed. If the borrower cannot repay their loan, their funds are automatically liquidated by code. So, we at least get 125% of the loan back.
2. Partner Risk. We use protocols and partners to automatically facilitate the lending process. The protocols & partners we use could be hacked or compromised. So, we only work with those whose technology is regularly audited by 3rd parties. In addition, they facilitate billions of dollars every year. So, there is a lot of money & people incentivized to keep them secure. With that being said, a hack or compromise could affect your investment.
3. Stablecoin risk. We convert your money into stablecoins & lend them out to borrowers who pay interest. The stablecoin we use ($USDC) could lose its peg to the US dollar and affect your investment. But, $USDC is 1:1 backed by US dollars. So, depegging is incredibly unlikely.
It may be scary to see all of these risks laid out. That’s normal! If you want to be a smart investor, you have to know what your investment's risks are and how they are being mitigated. We want you to be a smart investor. And since transparency is our #1 priority, we fully outline the risks that come with using Burst Secure.
*Although we mitigate our risks, Burst is not a bank and therefore is not FDIC insured. That means the government does not insure your money in every potential scenario.
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