🛑What are the Risks?

Nothing in life comes for free - and definitely, nothing in crypto does. If you're planning to put money into TensorSwap you should understand the risks involved.

Impermanent Loss

Impermanent loss (IL) is a term that originated in DeFi and is the main economic risk you're taking by putting liquidity into TensorSwap.

What does it mean? We wrote an entire section on it: Impermanent Loss, but if you want the TLDR it's as follows:

  • If you put 10 NFTs into the protocol (let's say you set up a 10% delta)

  • and the price 10x's from here

  • you would have been better off holding the NFTs than providing liquidity because your order will have sold the NFTs gradually at prices lower than 10x

Read Impermanent Loss for a more detailed example.

One counter-argument to IL is that for most of us - we simply don't know what the price is going to do. We might suspect the NFTs to do ok (otherwise we probably wouldn't hold any) - but how much is ok? Should you sell at 2x? 5x? 10x?

The great thing about setting up a TensorSwap order is that you don't need to worry about it.

Because the order sells off NFTs gradually on a curve, you can simply tell it to sell "from 2x to 10x" and forget about it.

If you're familiar with dollar cost averaging (DCA) - by setting up a TensorSwap order you're DCA'ing out of a position. It's what the old guys like Buffet tell you is wise. 🧙‍♂️

Protocol Risk

Putting anything into any protocol is risky because it can get hacked and drained. There's no shortage of precedents in crypto history.

The good news for you is:

  • ✅ There have been FAR fewer (literally by a magnitude) hacks on Solana vs Eth. This is because Solana's programming model is more complex but ultimately safer.

  • ✅ At this point we're keeping the protocol closed source to reduce the attack surface, while we do the necessary security checks.

  • ✅ We're the same team that wrote Gem Farm by Gemworks - a staking protocol that has been open-sourced from day 1 and that's used for staking by over 60% of NFT projects on Solana. Gem Farm has never been hacked or drained for ~12m since it's been released.

  • ✅ We're actively using auditing software like Sec3 and are engaging with auditors to get our protocol to the point where we're comfortable open-sourcing it.

Poorly Configured Orders

It's important to say that just setting up an order doesn't guarantee it gets taken.

If you set up a LIST order to list at 20 SOL when the floor is at 7... well there might not be any activity on that order for a while.

This is especially important when it comes to market-making orders, which you're probably setting up to make fees.

Unless the starting price of a collection-wide bid/listing order / market-making order is set up relatively close to the global floor price - don't expect much activity.

The risk you're taking on here is that you set up an order, come back a month later, and find it hasn't sold/bought anything. That would have been a waste of your capital / NFTs that could have been earning a return elsewhere (eg in staking).

✅ The good news is that we've writtenSetting up your Market-Making Order - an entire page that goes over all the config params & gives you 3 simple templates (low risk 🟩, medium risk 🟨, high risk 🟥 to use for your MM pool).

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