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Risk

Every product that pays interest carries risk, because the interest exists for a reason: something underneath is exposed. What that something is depends on which product you use, and who absorbs a loss depends on how you hold it.

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What You Are Exposed To

Earn

The money behind your balance is lent to borrowers who put up more collateral than they take out, across several lending markets, and they pay for the use of it.You are exposed to those markets and to the stablecoin underneath. A balance that earns is not the same thing as a dollar sitting still.

Create

Your token is exposed to whatever you chose to back it with, and to how you combined those assets. A basket of lending vaults behaves nothing like a basket of tokenised treasuries.Composition is your decision, and your holders will look to you rather than to Reflect.

Protect

Both sides are exposed to the same underlying asset. What the split changes is the order of loss: junior absorbs everything until it is exhausted, and only then does senior begin to.Junior can lose its entire position, and cannot exit during its cooldown. Senior is covered only as deep as the junior tranche beneath it, and that depth moves as capital enters and leaves.

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Who Absorbs A Loss

Not Reflect. A bank can offer cover because it holds your money and is licensed and capitalised to stand behind it, and Reflect holds neither your money nor that obligation. Cover is still available, just bought rather than bundled in. Protect lets other capital agree to take the first loss on your behalf, at a price set by how much of it is competing for the job.

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Risks That Apply Whatever You Use

Each one below sets out what it is, what Reflect does about it, and what you can do about the part that remains.
What it is. Deposits are held by code. Code can contain flaws, and code holding money is a target.What Reflect does. Every program is audited before it holds deposits, by Offside Labs and Adevar Labs, covering Reflect Core, yield routing and the whitelabel program. Reports are published in full rather than summarised, in the audits repository.What you can do. Read the reports for the products you intend to use. Size any position to an amount you would accept losing.
What it is. Wherever money is lent, it sits in a lending market with its own code, history and operators. That applies to Earn directly, and to any token created against lending-backed collateral. Spreading across several markets reduces dependence on any one, but the exposures add up rather than cancel out.What Reflect does. Only reviewed venues are eligible to hold reserves, and the published methodology sets how much can sit in any one of them.What you can do. Current allocation is queryable at any time, so you can see which venues hold your reserves. If you want a buffer against venue losses, Protect lets you hold a senior position instead.
What it is. Redeeming depends on withdrawal capacity at the venues holding reserves. Under stress, that capacity can tighten, making exit slower or more expensive than it is in calm markets.What Reflect does. Allocation weighs liquidity depth rather than rate alone, and each asset carries a supply cap that limits size relative to the capacity behind it.What you can do. Caps, current supply and remaining capacity are published live. Do not assume that an exit which is instant at small size is instant at large size during a crisis.
What it is. Rates move with borrower demand. A rate today is not a rate tomorrow, and it can fall a long way.What Reflect does. Published rates are real time, derived from interest actually being generated, rather than trailing averages that can flatter a rate which has already moved.What you can do. If you have quoted a fixed rate to your own users, you are absorbing the difference. A senior position in Protect trades some rate for a buffer, which suits products that need to be conservative.
What it is. Every position inherits the risk of what backs it. A dollar depends on the company issuing it. A tokenised treasury depends on its issuer and their custodian.What Reflect does. Assets are reviewed before they can back anything, scored on liquidity depth, issuer reliability and how widely they trade across venues, over a review process rather than a checklist. Only permissionless, freely transferable assets are eligible, so nothing carrying transfer restrictions or holder eligibility requirements enters the system.What you can do. Know what backs your position and who issues it. Those details are published per asset.
What it is. A basket can look diversified and still fail as one piece. Two strategies that look unrelated in calm markets can break on the same day for the same reason, which is the failure mode that has broken structured products before.What Reflect does. Economic security audits test how a strategy behaves under stress and in extreme scenarios, not only under normal conditions. Classification considers how an asset trades when liquidity thins.What you can do. If you have built a basket, check whether its components share a dependency: the same venue, the same custodian, the same liquidity source. Diversification across names is not diversification across causes.
What it is. Token values depend on a price feed reporting the underlying exchange rate. A stale or incorrect price affects issuance, redemption and tranche accounting.What Reflect does. Reflect uses Doppler, an oracle designed for very low cost per update, so rates are refreshed frequently rather than occasionally. Feeds are onchain and readable by anyone.What you can do. Published rates and exchange rates are queryable. Treat an unusual divergence between a token and its backing as a reason to pause rather than to trade.

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Regulatory Risk

The rules covering these products are unsettled. The CLARITY Act is not law, related rulemaking is still in progress, and treatment varies by jurisdiction. Changes could affect how products like these are offered, to whom, or on what terms. Reflect’s architecture is built to adapt rather than to bet on one outcome, which is covered in Compliance. That reduces exposure to a rule change. It does not remove it.

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What Reduces These Risks

Three reviews happen before an asset or strategy is eligible to hold anything.
  • Asset classification. Scoring on liquidity, issuer reliability and availability across venues. Assets that do not clear the threshold are not eligible, and requests to classify assets on behalf of others are not accepted.
  • Economic security audits. Independent simulation and backtesting of a strategy, including extreme scenarios, carried out by third parties who specialise in financial rather than code review.
  • Code security audits. Independent review of every program by Offside Labs and Adevar Labs, with all reports public.
After you are exposed, loss absorption works through markets rather than a fund. Reflect operates no insurance pool. Instead, Protect lets any yield-bearing asset be split so that capital which wants the risk absorbs losses first, and capital which does not gets a buffer priced by how much of the former turns up. Risk is priced continuously by people choosing to take it, rather than estimated once by whoever sized a fund.

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Next

Audits

Every code and economic audit report in full.

Compliance

How the architecture affects your regulatory position.
This page describes risks as they are understood today and is not exhaustive. It is not financial, investment or legal advice. Onchain finance and self-custody carry risks beyond those listed here, and you should form your own view, with professional advice where appropriate, before depositing anything.