Risk Warnings

Risks

All lending carries risk. Different Lending Strategies may also carry different levels of risk. Some of the risks of lending on Kasu are as follows:

General risks

Prospective Lenders should understand that all lending carries varying degrees of risk, including the potential for loss of some or all of a Lender’s income and/or capital, a less than expected interest rate return (APY), and delays in End Borrower repayments and Lender Withdrawals. When considering a Lending opportunity, it is important to consider such things as:

  • The risks involved in Lending in a particular Lending Strategy;

  • The extent that the Lending Strategy fits your financial objectives and goals; and

  • Your risk appetite.

It is generally considered that opportunities offering potentially higher returns (APY) also carry a higher level of risk. Lenders should seek their own independent financial advice before lending on Kasu.

Income and capital risks

Risks attaching to Lending on Kasu include (but are not limited to):

  • You may not receive the interest return you expected; and/or,

  • You may lose some or all of your capital.

The degree of income and capital risk associated with Lending on Kasu relate to the financial performance of Delegates and their End Borrower customers, to which your funds are on-lent. This will be affected by factors including End Borrowers’ ability to repay their Loans and Delegates’ competence in credit diligence, credit risk structuring and risk management.

Neither Kasu, nor any of its directors, employees and contractors, nor any other related company or Delegates, guarantee the performance of the loans or the repayment of loaned capital. Loans on Kasu are subject to credit (and other) risks. This could involve delays in repayment of Loans, loss of some or all of interest returns and capital, and interest returns that fluctuate.

Performance and default risk

Your lending balance can increase based on interest earned, and it can decrease based on any losses and defaults caused by End Borrowers. Interest earnings are not guaranteed, and you may lose money. Interest rates (APY) vary, so future interest returns may differ from past interest returns.

Market risk

Changes in financial markets, interest rate markets, the economy, political changes, technological developments, global or local-specific events and changes in market sentiment continually affect the risk of lending. These market risks can affect End Borrowers’ ability to repay loans, which in turn, may cause defaults and losses.

Interest rate risk

Changes in interest rates can directly and indirectly affect your lending balance and interest returns. For example, an increase in official interest rates may result in increased default risk to End Borrowers, affecting their ability to repay loans, which in turn, may cause defaults and losses.

Credit risk

Credit risk is the risk that the Underlying Borrowers (End Borrowers) may not meet their obligations in full and not pay interest and repay capital or other financial obligations on time. In the case that this results in losses, the balance of your lending may reduce. Examples of credit risk include where the End Borrower is a business and becomes insolvent or under external administration, or a guarantor is an individual and becomes bankrupt or dies.

All lending to Kasu is completely unsecured, which increases risk compared with secured lending. Kasu on-lends Lenders’ funds to Delegates, who on-lend to End Borrowers. There is no direct security taken by Lenders over Kasu or Delegates. Delegates seek to reduce credit risk by taking security over End Borrowers for the benefit of Lenders. Delegates also provide choice of loans across a range of End Borrowers, industries and geographic sectors. Delegates employ a range of risk management strategies and credit structuring to reduce credit risk where possible.

Delegate counterparty risk

Kasu does not guarantee the performance of Delegates and their End Borrower customers. All credit due diligence, credit underwriting and credit risk management related to End Borrowers is undertaken by Delegates. Kasu accepts no responsibility for any losses. This includes the potential failure and credit risk of a Delegate.

Protocol risks

The Kasu protocol could terminate. Fees could increase. There is no guarantee that the Lending Strategies offered on Kasu will perform successfully and as intended.

KSU token price risk

The KSU token is subject to price volatility. If you lock KSU to avail of the token’s utility and benefits, negative price fluctuations in the token may negate some, or all, of these benefits and may even fluctuate to the point where you may be in a less favourable overall position than if you didn’t purchase and lock KSU to achieve utility and benefits.

Smart contract risk

As with any RWA (real world asset) lending protocol, bugs or errors in the code, as well as malicious actors exploiting vulnerabilities, could lead to unexpected or incorrect results and financial losses to Lenders. Smart Contracts on Kasu have undergone audits to address such potential risks; however there is no guarantee that audits are or will be successful in identifying errors in the code and Lenders use the protocol at their own risk.

End Borrower concentration risk

Lending Strategies may be subject to some degree of concentration risk, being the risk associated with Delegates that may only on-lend to a limited number of End Borrowers, thus increasing the risk if an End Borrower fails to repay its loan.

Delegate concentration and KSU token price risk

At the current point in time, Apxium is the only Delegate Kasu has partnered with. This not only presents concentration risk in the event that the Delegate and/or its End Borrower clients fail, but also presents risk to KSU token holders. For example, if Apxium ceased participating as a Delegate on Kasu, then the KSU token may no longer have utility, which in turn, may affect the KSU token price significantly.

Tranche risk

In the event of any end borrower defaults, Senior Tranche Lenders are paid first from any recovered funds, but this still depends on the overall recovery rate. In the event that less than 100% is recovered, losses are proportionately applied across Lenders in the lowest ranking tranche first (Junior Tranche), proceeding up the line through Mezzanine Tranche (if applicable) and finally to Senior Tranche. This proportionality is applied in line with the abovementioned ranking order, regardless of which individual end borrower(s) a particular Lender’s funds are loaned to (i.e.any losses borne by the Lending Strategy are mutualised across Lenders starting from the lowest ranking tranche).In the absence of Junior and Mezzanine Tranches, losses are proportionately applied across all Lenders in the single available tranche.

Currency exchange risk Cryptocurrency-Fiat Exchange Rate Risk: Lenders deploy USDC (or a cryptocurrency that is swapped to USDC via 1inch), which Delegates convert to fiat currency to originate business loans to End Borrowers. Given that not all fiat loans will be denominated in US Dollars (e.g.. AUD, GBP and CAD), currency exchange rate risk may be evident. Similarly, Delegates convert fiat currency to USDC to meet Withdrawal Requests from Lenders, which similarly carries currency risk. Where deemed appropriate, Delegates may use currency hedging instruments to mitigate such risks.

Political, legal and regulatory risks The regulatory environment for cryptocurrencies is still evolving. New regulations or changes in existing laws can impact the operation of RWA lending platforms (and DeFi in general), potentially leading to closures, additional compliance requirements, unanticipated expenses or other challenges that could affect Lenders and End Borrowers. As above, it is important for users to understand and manage these and other risks before participating in activities on the Kasu protocol. Kasu has engaged a Tier 1 global legal firm to seek advice around the regulatory environment in which Kasu operates.

Liquidity (withdrawal) risk

This arises when there is insufficient liquidity in a strategy to facilitate smooth withdrawals, which may result in Lenders being unable to withdraw funds as and when required.

Cyber (data security and electronic delivery) Risk

Because your lending on Kasu is on the blockchain and fully online, which relies on computers, information technology (IT) networks and the internet, it is subject to inherent IT risks including (but not limited to) software and smart contract bugs, computer viruses and malware, unauthorised interference with data, loss of data, unavailability or unreliability of the internet, computer malfunction, network vulnerabilities, latency, and cyber hacking resulting in the theft of data. The online Kasu platform may be unavailable from time to time. You will need to consider the potential for disruption or other difficulties when planning to use Kasu and the dApp.

No guarantee

None of Kasu and its related entities, officers or personnel, or Delegates on Kasu, guarantee the performance of your loans, or the repayment of any loan amount, or the interest returns. Lending on Kasu is entirely at the risk of Lenders. No one and no entity makes any representation as to the success or otherwise of your lending on Kasu.

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