# Risks The PRISM product consisting of PRISM and xPRISM involve exposure to digital assets, delegated investment management, and blockchain-based infrastructure. Participation involves material risk, including the potential loss of some or all invested value. ### Investment Management & Role Allocation The investment strategies underlying PRISM are managed by Monarq Asset Management, an external professional investment manager and subsidiary of FalconX. Monarq is responsible for portfolio construction, execution, risk positioning, and day-to-day strategy management. OpenEden Digital Limited acts as the issuer and platform operator and does not control individual trading decisions or portfolio execution. Performance, losses, or operational issues arising from investment decisions made by Monarq will directly affect PRISM and xPRISM holders. The involvement of a professional or regulated investment manager does not eliminate the risk of loss. ### Strategy Risks The following risks arise from the selection, execution, and performance of underlying investment strategies and third-party assets deployed by Monarq, including market-neutral trading, lending, and DeFi yield strategies. ### Market Risk Market risk includes losses arising from adverse movements in market prices, funding rates, and liquidity conditions and investment strategies and assets managed by Monarq Asset Management. **Yield Volatility** \ Returns for PRISM are not guaranteed and may fluctuate significantly. Yield compression across underlying strategies may result in materially lower returns or periods of underperformance. **Basis & Funding Rate Risk** \ Cash-and-carry strategies are exposed to changes in futures basis and perpetual funding rates. Sustained adverse conditions may reduce or eliminate expected returns. **Collateral Price Risk** \ Overcollateralised lending strategies remain exposed to rapid declines in collateral value. In extreme market conditions, liquidation processes may be insufficient to prevent losses. **Asset Liquidity Risk** \ Certain positions may become illiquid during stressed market conditions, limiting the ability to unwind exposures without material price impact. **Stablecoin De-Peg & Issuer Risk** \ Stablecoins and synthetic assets may deviate from their intended value due to issuer failure, structural weaknesses, market stress, or loss of confidence, potentially resulting in sudden and significant losses. **Leverage & Liquidation Risk** Certain strategies may employ leverage. Leverage magnifies gains and losses and increases exposure to liquidation, counterparty failure, and operational errors. ### Token Risk The following risks arise from the structure, mechanics, and operation of the PRISM and xPRISM tokens. **Token Value Risk** \ The value of PRISM and xPRISM is not fixed and is not guaranteed to remain at or above any particular reference value. The token price may fluctuate based on market conditions, underlying portfolio performance, liquidity dynamics, or other factors, and may fall below 1.00, resulting in a loss of principal. **PRISM–xPRISM Conversion Rate Risk** \ PRISM and xPRISM operate using a variable exchange rate determined by protocol mechanics, portfolio performance, fees, and accrued yield. The exchange rate applicable when converting PRISM into xPRISM may change over time, and users who convert at different times may receive different amounts of xPRISM for the same PRISM amount. Redemption outcomes depend on portfolio performance and may be adversely affected by losses, fees, or extraordinary events. ### Credit & Counterparty Risk PRISM is exposed to the risk that counterparties fail to meet their obligations. This may arise from Monarq’s use of third-party counterparties and venues. **Asset Manager Risk** \ Failures, errors, or misconduct by the external investment manager may result in losses. **Exchange, Custodian & Platform Risk** \ Assets may be exposed to centralized exchanges, custodians, prime brokers, or DeFi protocols that may suffer hacks, insolvency, regulatory intervention, or operational failure. **Institutional Borrower Risk** \ Lending strategies expose the portfolio to borrower default risk. Liquidation outcomes may be uncertain or delayed under stressed conditions. ### Liquidity Risk Liquidity risk is the risk that assets cannot be redeemed or liquidated in a timely manner. **Redemption & Liquidity Mismatch** \ User redemption timelines may not align with the liquidity profile of underlying strategies. In adverse conditions, redemptions may be delayed or restricted. **Run-on-the-Vault Risk** \ Large or sudden unstaking activity may require orderly unwinding of positions. Cooldown periods and queues may limit immediate access to funds. ### Operational & Technology Risk PRISM relies on blockchain networks, smart contracts, software systems, and third-party infrastructure. **Smart Contract & Oracle Risk** \ Smart contracts and pricing mechanisms may contain vulnerabilities or fail due to unforeseen interactions, exploits, or data feed errors. **System Availability & Cybersecurity Risk** \ Platform outages, infrastructure failures, or cyber incidents may disrupt access, delay transactions, or impair operations. **Third-Party Dependency Risk** \ Failures or disruptions at service providers, including custodians, monitoring providers, or infrastructure vendors, may adversely affect the system. ### Regulatory & Compliance Risk The regulatory treatment of digital assets and tokenised investment products is evolving. Changes in laws, regulatory interpretations, or enforcement actions may restrict product functionality, require restructuring, limit redemptions, or result in suspension or wind-down. Products that permit secondary market transfers may also be subject to enhanced AML/CFT controls, including transaction monitoring, restrictions, or freezes where required by law. ### Strategic & Reputational Risk Adverse events, including underperformance, security incidents, operational failures, or regulatory actions, may damage confidence in PRISM and trigger user withdrawals. Conflicts of interest or contagion effects arising from affiliated counterparties may further amplify these risks. ### No Guarantee of Returns PRISM does not provide capital protection. Returns are not guaranteed, and users may lose some or all of their investment. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.openeden.com/prism/risks.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.