# Strategy Risks

Yearn earns income from lending, liquidity mining and trading fees. This income is often increased using leverage.

## Lending

Collateralized lending is when an asset is lent in return for a yield paid by the borrower. The borrower has to lock up a greater amount of collateral than the value of the loan to incentivize the repayment of the loan.

| Risk          |Description                       |
| ------------- | ----------------------------------------------------- |
| Governance    | Admin key holders change lending protocol adversely, e.g. change the interest rate model in such a way that discourages borrowing |
| Technological | Smart contract risk of interacting with lending protocols        |
| Market        | Low demand for borrowing the asset causes low lending yields  |
|               | Collateral price falls causing the lending protocol to become undercollateralized  |
|               | Lent assets become unavailable to withdraw because the utilization ratio becomes too high |
| Operational   | Delays or inability to withdraw assets from the lending protocol in an emergency    |

## Liquidity Mining

Liquidity mining involves interacting with a protocol to earn the protocol’s native tokens.

| Risk             | Description                                                                              |
| ---------------- | ---------------------------------------------------------------------------------------- |
| Governance       | Admin key holders change protocol adversely, e.g. introduce penalties for withdrawals    |
| Technological    | Smart contract risk of rewards contract                                                  |
|                  | Smart contract risk of AMM used to exchange the liquidity mined token for the Want token |
| Market           | Fall in price of token being farmed                                                      |
|                  | Liquidity of liquidity mined token on AMM is reduced or removed                          |
| Operational Risk | Delays or inability to withdraw liquidity in an emergency                                |

## Trading Fees

Trading fees are earned in Automated Market Makers (AMMs) by providing liquidity.

| Risk             | Description                                                                                                                                          |
| ---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- |
| Governance       | Admin key holders change protocol adversely, e.g. reduce rewards paid to liquidity providers                                                         |
| Technological    | Smart contract risk of AMM (e.g. Curve Finance, Sushiswap or Uniswap)                                                                                |
| Market           | Trading volumes reduce leading to lower fees                                                                                                         |
| Impermanent loss | [Impermanent loss](https://academy.binance.com/en/articles/impermanent-loss-explained) due to the pool’s token prices changing relative to each other |
| Operational Risk | Delays or inability to withdraw liquidity from the AMM in an emergency                                                                               |

## Leverage

| Risk             | Description                                                                            |
| ---------------- | -------------------------------------------------------------------------------------- |
| Governance       | Admin key holders change the lending protocol adversely                                |
| Technological    | Smart contract risk of lending protocol (Aave, Compound Finance, Maker, Unit protocol) |
| Market           | Risk that the debt is liquidated due to a price fall                                   |
|                  | Risk that income is lower than the cost of the flash loan                              |
| Oracle           | Incorrect price feed                                                                   |
|                  | liquidation penalties                                                                  |
| Operational Risk | Operational risk of managing debt positions                                            |

These factors are all taken into account by the Yearn Security Team when scoring strategies using the [Risk Score Framework](./risk-score.md).