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Risk Management

Risk Management

Understanding and managing risks is crucial when using DeFi protocols. This guide explains the risks associated with Amber Finance and how to mitigate them.

Security Framework

Uncapped Potential with Maximum Security

Amber Finance does not implement the same risk framework or deposit caps used by Mars Protocol’s default deployments.
This means there are no deposit caps in place, enabling uncapped potential for liquidity providers and yield seekers.

Risk Framework Overview

  • Forked from the Mars Protocol Red Bank, the most recognized lending framework in the Cosmos ecosystem
  • Audited smart contracts, verified for security and robustness by Oak Security and Halborn
  • Developed by Mars Protocol contributors, ensuring deep familiarity with the underlying codebase
  • Isolated market architecture to reduce contagion risk between assets

Key Differences from Mars Protocol

You can review the underlying Mars Protocol contracts and audits here: Mars Protocol Documentation .

Understanding DeFi Risks

Smart Contract Risk

What it is: The risk that smart contracts contain bugs or vulnerabilities that could lead to loss of funds.

Amber’s mitigation:

  • Audited by Oak Security and Halborn
  • Forked from battle-tested Mars Protocol contracts
  • Open-source code for community review
  • Gradual deployment with testing phases

Liquidation Risk

What it is: The risk that your position gets liquidated if your health factor drops below 1.0.

How to manage:

  • Monitor health factor regularly
  • Keep health factor above 1.5 for safety
  • Have reserves to add collateral if needed
  • Understand liquidation parameters for each asset

Market Risk

What it is: The risk that asset prices move against your position, affecting your collateral value.

How to manage:

  • Diversify across multiple BRTs
  • Don’t over-leverage your positions
  • Monitor market conditions
  • Have exit strategies planned

Protocol Risk

What it is: The risk that underlying BRT protocols fail or experience issues.

How to manage:

  • Research underlying protocols
  • Diversify across different BRT providers
  • Monitor protocol health and updates
  • Don’t put all funds in one protocol

Health Factor Management

Understanding Health Factor

Health factor (HF) is the primary risk metric in Amber Finance:

  • Above 2.0: Very safe, can increase leverage
  • 1.5 - 2.0: Safe operating range
  • 1.3 - 1.5: Caution zone, monitor closely
  • 1.2 - 1.3: Danger zone, reduce leverage immediately
  • Below 1.2: Liquidation risk, take immediate action

Health Factor Formula

Health Factor = Total Collateral Value / Total Debt Value

How to Improve Health Factor

  1. Add more collateral - Deposit additional assets
  2. Reduce debt - Repay borrowed assets
  3. Wait for price appreciation - If collateral prices increase
  4. Avoid high leverage - Keep leverage ratios conservative

Risk Management Strategies

Conservative Strategy (Low Risk)

Target APY: 2-5% Leverage: 1.2x - 2x Health Factor Target: Above 2.0 Best for: Beginners, risk-averse users

Strategy:

  • Focus on established BRTs (LBTC, uniBTC)
  • Low leverage ratios
  • Regular monitoring
  • Diversified positions

Balanced Strategy (Medium Risk)

Target APY: 4-8% Leverage: 2x - 5x Health Factor Target: Above 1.5 Best for: Experienced DeFi users

Strategy:

  • Mix of established and newer BRTs
  • Moderate leverage
  • Active monitoring
  • Risk management protocols

High Yield Strategy (High Risk)

Target APY: 6-12% Leverage: 5x - 10x Health Factor Target: Above 1.3 Best for: Advanced users with high risk tolerance

Strategy:

  • Higher leverage ratios
  • Newer BRT protocols
  • Very active monitoring
  • Sophisticated risk management

Emergency Procedures

If Your Health Factor is Low

  1. Immediate Actions:

    • Add more collateral immediately
    • Reduce debt by repaying borrowed assets
    • Consider partial withdrawal to reduce exposure

  2. If Health Factor < 1.2:

    • Take immediate action to avoid liquidation
    • Consider emergency withdrawal
    • Contact support if needed

If You Get Liquidated

  1. What happens:

    • Partial liquidation occurs
    • Liquidation penalty applied (5-10%)
    • Health factor restored to 1.1
    • Remaining position continues

  2. Recovery:

    • Assess what went wrong
    • Rebuild position gradually
    • Implement better risk management
    • Learn from the experience

Best Practices

Before You Start

  • Understand the risks - Read all documentation
  • Start small - Begin with conservative strategies
  • Test with small amounts - Learn the platform first
  • Have a plan - Know your risk tolerance and goals

Ongoing Management

  • Monitor regularly - Check positions daily
  • Set alerts - Use notifications for health factor warnings
  • Keep reserves - Maintain emergency funds
  • Stay informed - Follow protocol updates and news

Portfolio Management

  • Diversify - Don’t put everything in one asset
  • Rebalance - Adjust positions as needed
  • Document - Keep records of your strategies
  • Review - Regularly assess your risk management

Risk Assessment Tools

Health Factor Calculator

Monitor your health factor in real-time on the dashboard. The platform provides:

  • Real-time health factor updates
  • Liquidation price alerts
  • Position monitoring tools
  • Risk visualization

Risk Metrics

Key metrics to monitor:

  • Collateral Utilization: How much of your collateral is being used
  • Debt Ratio: Your total debt relative to collateral
  • Liquidation Price: Price at which liquidation occurs
  • Available Liquidity: How much you can borrow

Additional Resources

Documentation

Community

  • Discord: Real-time support and discussions
  • GitHub: Technical documentation and code
  • Blog: Latest updates and announcements

External Resources

Disclaimer

This risk management guide is for informational purposes only and does not constitute financial advice. DeFi protocols carry inherent risks, and users should:

  • Conduct their own research
  • Understand the risks involved
  • Only invest what they can afford to lose
  • Seek professional advice if needed

Amber Finance is not responsible for any losses incurred through the use of the platform.

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