# iAUSD Risks

There are known risks of holding and using stablecoins in general. In this section we discuss these risks and how inshAllah minimizes these risks for iAUSD

1. **Depegging risk**

   The main risk of stablecoins is depegging from the intented value, i.e., having iAUSD trade above or under $1. All stablecoins inlcuding USDC and USDT have this risk. Depegging reflects the status of the demand-supply-balance of the stablecoin. If the stablecoin has more buy demand, its price can go above $1 in the open market. If there is excessive sell pressure, the stablecoin's price can go below $1.\
   \
   iAUSD addresses this risk via

   1. Creating a stability module to maintain the peg\
      The stability module is similar to DAI's peg stability module. It allows users to redeem their iAUSD to USDC at parity. The stability modules creates efficient arbitrage opportunities that prevents the open market price of iAUSD from deviating from $1.&#x20;
   2. Providing sufficient market liquidity\
      An important factor that allows a stablecoin to maintain a strong peg to $1 is the availability of strong liquidity on public exchanges. InshAllah will provide liquidity, directly and via market makers, to the iAUSD pairs on CLMM DEXs, e.g., Raydium an on CEXs upon listing \ <br>
2. **Undercollateralization during extreme volatility**

   A known risk of overcollateralized stablecoins is the volatility of the underlying collateral, i.e. SOL volatility. During periods of extreme volatility, the collateral price can change very quickly leading to iAUSD becoming under-collateralized. \
   \
   iAUSD addresses this risk via

   1. &#x20;Sufficient overcollaterlaization:  the iAUSD system has 150% overcollateralization ratio which provides a strong safety margin, i.e, the price of the collateral has to drop more than 33.3% within seconds for iAUSD to become under-collaterlaized
   2. Auto-liquidations: Any position that drops below the required collateralization ratio gets auto-liquidated. The liquidation sells the collateral and buys iAUSD from the open market guaranteeing that iAUSD are consistently over-collateralized
   3. Fast response: launching on Solana which has 400ms blocktime along with using low-latency oracles, i.e., Pyth, allows the iAUSD system to respond quickly to volatile market conditions. This means that undercollateralized positions will be liquidated within seconds from entering this state preserving the integrity of the system. <br>
3. **Variable Yield**&#x20;

   Some stablecoins offer a fixed yield because they are built on top of interest, e.g., treasuries. iAUSD as a shariah-complaint stablecoin has yield that comes from profit-sharing. The staking yield that powers iAUSD is variable and depends on the network rules and market conditions. Having a variable yield is a core characteristic of iAUSD that makes it a halal asset.&#x20;
