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What are the risks? Can I lose my money? Are my funds insured?
What are the risks? Can I lose my money? Are my funds insured?
Written by Alexander Wu
Updated over a week ago

We try to be as transparent as possible with you. If you think there are risks we didn't mentioned below, please contact us!

These are the top risks to keep in mind:

Crypto application exploitation

Crypto applications are run entirely through code. This has benefits and risks.

The main risk is that the code can be exploited. An exploit can result in your funds in the application being stolen.

How does this risk apply to Tori?

Tori helps you interact with an application called Aave.

Aave is one of the safest and oldest crypto application, running since 2017 with no major incident. It has $12B in assets and over 118,000 users. Aave has also been audited 7 times by leading blockchain security firms.

However, exploit risks are always there and you should make your own evaluation before using Aave or any other application.

Funds in Tori are not insured

Funds in Tori Wallet are not insured.

However, since Tori Wallet is self custodial, this means Tori doesn’t touch or hold your money. So even if Tori shuts down, your funds are safe.

Compromised private key

If your private key is compromised, someone could steal your funds.

Tori is a self custodial wallet - which means it is wholly controlled by a private key. Anyone with this private key can access and move your funds.

Your private key is encrypted and stored in a highly-secure Turnkey Secure Enclave (Learn more here). Your private key is encrypted in flight which means that noone has access to it except for you at any point in time - not even Tori nor Turnkey.

The only way to access your private key in the Turnkey Secure Enclave is through your Apple or Google passkey which is secured by both your device’s biometric verification and your Apple ICloud or Google Cloud account.

However, if you export your private key, this opens up the vulnerability of getting hacked since now the key is outside of the secure enclave encrypted system. This is why we recommend you understand all the risks before you export the private key.

If you export your private key, or if your Apple/Google cloud and biometrics get hacked, or if Turnkey gets hacked, then your funds could be stolen.

USDC de-peg

Your funds are converted to a digital dollar called USDC.

USDC is a token issued by Circle, a US registered and licensed company that ensures every USDC is backed by 1 USD. There is a risk of Circle not being able to fulfil its obligation to back USDC with USD. This would result in USDC being valued at less than 1 USD.

However, this risk is lessened due to Circle being a registered and licensed entity in the US that publicly publishes proofs of the USD funds that back USDC. Their proofs are audited by Deloitte and are publicly available, including details down to the CUSIP numbers of their treasury bills.

Lend-borrow cascading liquidation risk

Applications like Aave are designed such that anyone who's borrowing money has to put collateral in crypto. They need to put more collateral than the amount they borrow.

  • For example, if a borrower wants to borrow $100, they need to put $200 of ETH.

If the price of the collateral drops below a certain threshold, the collateral is sold to protect lenders

  • In the example above if the price of ETH drops so that the $200 locked up as collateral becomes only $133, it is sold to cover the $100 plus interest which was borrowed

However, If the price drops at such a fast pace that the application isn't able to perform liquidations, then this could result in lenders losing money.

  • For example, if the price of ETH suddenly drops such that the original $200 now turns to only $90, then the amount of collateral is now less than the amount borrowed ($100).

  • This would result in lenders losing money.

Aave's system is designed to minimize the risk of sudden price drops by selecting for tokens which don't typically experience large price swings and by setting a liquidation ratio that gives enough padding against large price movements. They also have a fund set aside to ensure any of these debts are covered.

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