Risk factors

These are the material risks. The documentation covers each one in depth.

The primary trust assumption

Every other risk on this page sits downstream of this one. If the attested facts are wrong, the on-chain record is wrong, and the remedies below execute against a position that does not exist as described.

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.

Risks that apply across the whole book.

Six that affect every depositor.

These are structural to the design rather than to any one sector. None of them is eliminated by the loss cascade. The cascade governs the order in which losses land, not whether they occur.

01Credit riskBorrowers may fail to repay. First-loss capital and the backstop absorb losses in a fixed order, but losses beyond both layers impair depositor principal.

02Liquidity timingThe underlying is illiquid, amortizing credit. sUSDfr redemptions queue in fixed redemption windows (epochs) and may take multiple windows to fill. Do not stake capital you may need on demand.

03Smart-contract riskContracts can contain defects despite testing, invariant fuzzing, and independent audits. Audits and monitoring reduce, but do not eliminate, this risk.

04Regulatory riskThe 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.

05Secondary-market riskDefault recovery for the receivable-backed sectors depends on selling assigned receivables into secondary markets whose prices and depth vary.

06Assessed redemption valueWhen a defaulted loan must be priced for redemptions, the queue uses a published, evidence-backed recovery assessment; without one it assumes zero recovery, the conservative default. Any assessment can change or be withdrawn before settlement. No recovery top-up is deployed or promised in v1; any future top-up would require separate approval and funding.

Risks that attach to particular collateral.

Each sector carries its own risks, set out in full on its own page. The related-party exposure has its own entry below.

Per-sector asset risk

Media & entertainment receivables carry payment-timing, audit/clawback, obligor-counterparty, and secondary-price risk. Renewables carry construction/completion risk.

Related-party exposure (digital assets sector)

The digital-assets sector lends to Forest Road's own trading subsidiary. Forest Road is simultaneously originator, servicer, and borrower-affiliate for that sector, 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. Its launch approval does not eliminate the conflict; it remains subject to ongoing review.

Crypto-collateral volatility (digital assets sector)

Unlike the receivable-backed sectors, the digital-assets sector 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, but do not eliminate, this risk.