What Are the Risks Associated with Trading Synthetic Assets?

The primary risks include smart contract risk, such as bugs or exploits in the code that could lead to loss of funds. Oracle risk is also significant, as a manipulated or faulty price feed could cause incorrect liquidations or pricing.

There is also collateral risk; if the underlying collateral is volatile, it could lead to cascading liquidations during market downturns. Finally, there is peg risk, where the synthetic asset may lose its correlation to the underlying asset due to market pressures or failures in the stabilization mechanisms.