Risk
Risk factors
An honest protocol names its risks specifically. These are the material ones; the documentation covers each in depth.
Credit risk
Borrowers may fail to repay. First-loss capital and the backstop absorb losses in a fixed order, but losses beyond both layers impair depositor principal.
Attestation trust
On-chain state reflects what authorized attesters assert about off-chain legal facts. A false attestation or compromised attester key means the protocol acts on false information. This is the protocol's primary trust assumption.
Per-vertical asset risk
Film credits carry issuance-timing, audit/clawback, state-counterparty, and secondary-price risk. Renewables carry construction/completion risk. Life sciences carry clinical/milestone risk. Real estate carries valuation and foreclosure-timeline risk.
Related-party exposure (digital assets class)
The digital-assets vertical lends to Forest Road's own trading subsidiary. Forest Road is simultaneously originator, servicer, and borrower-affiliate for that class — a structural conflict of interest. It is mitigated by arm's-length terms, on-chain concentration caps, conservative dynamic LTV with margin-call/liquidation mechanics, and plain disclosure. It must be expressly considered in the launch economic review.
Crypto-collateral volatility (digital assets class)
Unlike the receivable classes, the digital-assets class is secured by liquid, price-volatile crypto positions that can gap through margin levels faster than remedies execute. Valuation freshness rules, conservative LTV, and rapid liquidation paths reduce — not eliminate — this risk.
Liquidity timing
The underlying is illiquid, amortizing credit. sUSDfr redemptions queue by epoch and may take multiple epochs to fill. Do not stake capital you may need on demand.
Smart-contract risk
Contracts can contain defects despite testing and invariant fuzzing. Mainnet deployment is gated on independent audits — and audits reduce, not eliminate, this risk.
Regulatory risk
The regulatory treatment of tokenized credit instruments is unsettled and varies by jurisdiction. Access is KYC-gated and jurisdiction-restricted; rules may change adversely after launch.
Secondary-market risk
Default recovery for credit-backed classes depends on selling assigned receivables into secondary markets whose prices and depth vary.
Assessed redemption value
The Sepolia testnet deployment routes queue pricing through the live assessment wrapper, which falls back to the conservative zero-recovery mark unless governance publishes a current, evidence-backed assessment. Any assessment can change or invalidate before settlement. No recovery top-up distributor is deployed or promised in clean v1; any future top-up would require separate approval and funding.