The primary risk factors associated with using Argo. This is by no means an exhaustive list.
Peg Risk : While USDA is valued at $1.00 when borrowing or repaying through Argo, it is possible that USDA trades off-peg on secondary markets. This can be caused by an imbalance between USDA supply/demand, extreme market volatility, lack of arbitrageurs, or low liquidity.
Oracle Risk : Argo uses oracles to price collateral. This determines collateral ratio and maximum borrow amount. Incorrect oracle price can cause wrongful liquidation or excess borrow.
Liquidation Risk : Associated with both oracle and peg risk. If collateral ratio is calculated incorrectly, a position can be wrongfully liquidated, leading to loss of collateral.
Bad Debt : When the equity of a vault is negative (collateral - debt < 0), the vault is considered “bankrupt”, and the negative equity in the vault is considered to be “bad debt”. This can occur if the liquidation of all collateral in the vault is insufficient to cover its debt. The vault owner has no incentive to pay back this debt; the Argo DAO must absorb this, since the issued USDA is not backed by anything.
Smart Contract Risk : As the Argo platform relies on smart contract code, it is possible that a critical bug could cause irrevocable loss of user funds or under-collateralization of USDA.
Insufficient Liquidity to Repay Debts : Vault debts can only be repaid with USDA. If there is low liquidity for USDA, it may be difficult or costly to repay a loan.