# What are the Risks?

## Impermanent Loss

[Impermanent loss](https://academy.binance.com/en/articles/impermanent-loss-explained) (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](https://docs.tensor.trade/provide-liquidity/advanced-concepts/impermanent-loss "mention"), 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](https://docs.tensor.trade/provide-liquidity/advanced-concepts/impermanent-loss "mention") for a more detailed example.

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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](https://www.investopedia.com/terms/d/dollarcostaveraging.asp) (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. 🧙‍♂️
{% endhint %}

## 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](https://github.com/gemworks/gem-farm/) - 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](https://pro.sec3.dev/) 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**.

{% hint style="warning" %}
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.
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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 written[setting-up-your-market-making-order](https://docs.tensor.trade/provide-liquidity/setting-up-your-market-making-order "mention") - 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).