# Risks

## Counterparty Risk 

Solomon uses off-exchange settlement providers to mitigate the risk of exchange compromise or failure. Solomon currently uses Ceffu for settlement of margin positions on exchanges. All assets are jointly held in a wallet controlled by Solomon, Ceffu, and exchange providers. In the event of an exchange compromise or failure, the upper bound for the potential loss caps out at the last twenty-four hours of profit and loss. This is because exchange providers maintain a twenty-four hour settlement cycle, and no assets are held on the exchanges.

## Funding Risk 

If funding rates remain negative for an extended period of time, there could be periods where Solomon owes funding fees rather than earns them. In these circumstances, those fees will be paid by the reserve fund. Empirically, funding rates have never persisted in being negative.

## Protocol Risk 

Any of the assets that are held by the protocol in margin or custodial accounts could be subject to various forms of failure. LST protocols could become compromised and lose peg (e.g., in the case of an infinite mint bug). Stablecoins could suffer a loss in their backing asset or suffer potential legal risks which lead to a loss of the peg. While the delta component of price volatility is hedged for the base currency of each perpetual market, the quote currency (generally USDT) is not.<br>


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