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Risk Factors & Attack Vectors​

Smart Contract Vulnerabilities
As with any on-chain system, Pi Protocol is exposed to risks from bugs, logic errors, or gas inefficiencies. These are addressed through modular contract design, formal reviews, and external audits.

Collateral Default
The primary risk to the system arises from default on underlying RWAs. For example, an IIA or private credit instrument may fail to deliver full repayment. To mitigate this:

  • All vaults are over-collateralized via haircut adjustments
  • A protocol-managed Loss Reserve Pool absorbs residual losses
  • Asset eligibility is determined through governance, based on credit risk and maturity

Market Risk and Peg Volatility
USP may face temporary price fluctuations due to external conditions. The protocol handles this through:

  • The LAMP mechanism, which facilitates buybacks and stability around $1

  • Dynamic USPi reward emissions that adjust incentives to rebalance supply and demand

Governance Exploits
Misuse of governance powers could result in damaging protocol changes. Pi Protocol mitigates this through:

  • Community voting via the USPi token

  • Staking and time-locking mechanisms (sUSPi) that prioritize long-term aligned participants

  • Transparent, on-chain proposal history and quorum thresholds

These measures collectively ensure that Pi Protocol can respond to both on-chain and off-chain risks while maintaining operational security and peg stability.