Supply-Related Risks

Withdrawal limits / throttles

Alula can apply withdrawal limits to protect pool liquidity, especially when utilization is high or when demand for withdrawals spikes.

Available for Withdrawal is the amount you can take out right now. It can be lower than your total supplied balance if the pool doesn't have enough idle liquidity (for example, if most funds are currently borrowed), if a Pool Withdrawal Limit is active, or if withdrawing would reduce your borrowing capacity below your current debt. In that case, you need to wait for liquidity to return or reduce your debt before withdrawing more.

Bad debt lock

In rare cases, a borrower's collateral can become insufficient to cover their debt — this happens when liquidations don't occur quickly enough. When the protocol detects bad debt in a pool you've supplied to, it will temporarily pause withdrawals for that pool.

This protects you from an unfair outcome: without the freeze, suppliers are incentivized to withdraw before the loss is applied, and before a possible drop in the share token rate in the event of partial or full bad debt socialization. The freeze gives the protocol time to apply insurance coverage first. If the insurance fund doesn't fully cover the shortfall, any remaining loss is shared proportionally across all suppliers in that pool.

Somewhat similar logic applies to deposits: an unaware supplier risks losing portions of their fresh deposits due to a diluted 'supply' share token rate in the event of partial or full bad-debt socialization. Because of this risk, fresh deposits are also frozen.

Withdrawals and deposits resume after the bad-debt event is processed (happens asynchronously by the insurance fund contract governance) or after the bad debt lock (configurable per market via a market admin) expires — whichever comes first. First versions of Alula rely on a controlled insurance fund implementation, in which the decision on how to cover bad debt is made by the insurance fund admin. The expiration mechanism is implemented as a safeguard against a malicious or inactive insurance fund admin, resulting in a permanent liquidity lock.

Smart contract risk

As a supplier, your deposited assets are held in the protocol's smart contracts. While Alula is built to be secure, on-chain protocols can still face risks such as bugs, unexpected edge cases, or exploits during extreme market conditions. Only supply what you're comfortable having in a DeFi protocol, and consider diversifying across pools to limit exposure to any single asset or market.