Providing liquidity on Wombat Exchange has potential rewards, and it also has potential risks. Investors should conduct their own research and understand the risks fully before depositing. Again, DYOR (Do your own research); the risks described below are non-exhaustive, and you will need to make your own assessment of the risks.
Wombat Exchange does not accept any responsibility or liability for any losses arising from the deposit of your assets into the liquidity pools or from your use of Wombat Exchange generally.
Assets that compose the liquidity pools on Wombat Exchange may be "pegged assets." Pegged assets are assets meant to track the value of the underlying asset (such as how WBTC tracks the price of BTC). While pegged assets usually track the value of the underlying asset very closely, there are risks in using pegged assets. For example, the pegged asset could fall victim to an exploit, which could adversely affect its value and cause it to de-peg from the value of the underlying asset. In extreme cases, the pegged asset could become worthless. The change in the value of a pegged asset may also affect the coverage ratio, which is described below.
Hacken, Peckshield, and Zokyo audited Wombat Exchange’s smart contracts. However, security audits don't eliminate risks. Do not invest your life savings or any assets you cannot afford to lose, especially as a liquidity provider.
You are also encouraged to review the smart contracts yourself and not rely wholly on the auditors.
Wombat will transition to be completely decentralized in the future. Currently, Wombat Emergency DAO has seven members who can act in times of danger of losing funds. The emergency DAO can call the function of Wombat Pool contracts which disables and reenables all functionality. Wombat’s emergency DAO can add or remove emergency members.
Users interact with multiple smart contract products when staking, and each carries its risks. You should also understand the design of Wombat Exchange's liquidity pools.
Wombat Exchange's liquidity pools utilize a concept known as the "coverage ratio," which is a mechanism meant to help a pool return to equilibrium. If there is a severe imbalance in a pool, withdrawing assets with a low coverage ratio could result in a significant withdrawal fee.
You are strongly encouraged to read the information on the coverage ratio, as it is an important concept for you to understand the risks of adding liquidity to Wombat Exchange's liquidity pools.