> For the complete documentation index, see [llms.txt](https://abrafi.gitbook.io/abrafi-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://abrafi.gitbook.io/abrafi-docs/overview/risk-assessment.md). # Risk Assessment ## Market and Funding Rate Risk The protocol is exposed to "Funding Rate Risk," particularly during periods of persistently negative funding. To ameliorate this, AbraFi utilizes its Reserve Fund and a dynamic allocation approach, shifting exposure to yield-bearing liquid stablecoins when market conditions for derivatives hedging become suboptimal. Historical data suggests a positive bias in annualized funding rates (e.g., 0.81% for SOL), supporting the long-term viability of the delta-neutral strategy. ## Liquidation and Counterparty Risk Liquidation risk arises from potential price divergence between backing assets and the underlying hedging instruments. AbraFi manages this through conservative maintenance margin requirements and frequent PnL settlement. To mitigate "Custodial Risk" and "Exchange Failure Risk," the protocol utilizes Off-Exchange Settlement solutions, ensuring that backing assets are never directly deposited onto exchanges. Concentration risk is further managed by diversifying across multiple custodians and liquidity venues. ## Operational and Systemic Risk Systemic risks include smart contract vulnerabilities and dependencies on external platforms. Additionally, reliance on centralized stablecoins (USDC/USDT) introduces "Stablecoin-Related Risks," such as regulatory censorship and banking infrastructure dependencies. AbraFi adopts a proactive monitoring stance and maintains a delta-neutral position to shield the protocol from idiosyncratic events affecting quote currencies or specific asset issuers. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://abrafi.gitbook.io/abrafi-docs/overview/risk-assessment.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.