Risks of Perpetual Options

Liquidation Risk, Rate Risk, Leverage Risk

Liquidation Risk

In GammaSwap, there is no liqudation price but there is a time to liquidation. This time to liquidation is an estimation of how long it takes for a position to cross the liqudation threshold LTV (99.5%) based on the current LTV of the position and borrow rate. If a position is liquidated, the trader is at risk of losing their deposited collateral and any profit they may have achieved.

Rate Risk

The borrow APR is variable based on utilization of the pool. The lower liquidity the pool is, the more volatile this rate will be.

Be careful because if the borrow APR rapidly increases, the time to liquidation will shorten drastically. You can always add collateral while a position is open to avoid liquidation. If you have a highly leveraged position, make sure to check your position often to avoid a liquidation, not just the estimated time to liquidation date.

Smart Contract Risk

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. While they can automate transactions and enforce agreements without intermediaries, they also carry risks such as software bugs, security vulnerabilities that might be exploited by hackers, and the challenge of adapting to unforeseen circumstances, which can lead to loss of funds or unintended outcomes. Smart contract risk is reduced by having security researchers review the contracts and with Lindy (time). GammaSwap contracts have been audited extensively and have never been exploited. There is an active bug bounty program on ImmuneFi to reward hackers who find issues with the contracts.