# Risks

Using Covenant involves risks. These risks include, but are not limited to:

* **Market risk:** If collateral falls heavily, Leverage Coin holders are wiped out, and Yield Coin lenders face losses only if collateral value < debt notional value.
* **Funding risk:** High LTV → high funding → negative carry for Leverage Coins.
* **Oracle risk:** Bad oracle feeds can misprice LTV, leading to mis-set rates.
* **Liquidity risk:** Exiting large positions may face slippage depending on Latent Swap depth.
* **Systemic risk:** In pooled lending ($MRGN), lenders share risk across markets; a bad market can drag NAV.
* **Protocol risk:** Covenant has undergone various audits, but there is always a risk of undetected bugs that expose locked value.

As per terms of service, use of the Covenant Protocol or the Covenant Interface bears risks, and is the sole responsibility of the user.


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