> For the complete documentation index, see [llms.txt](https://docs.mezz.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.mezz.finance/security-and-audits/protocol-risks.md).

# Protocol risks

#### **Smart contract risk:**

Bugs or exploits in on-chain contracts may result in partial or total loss of funds. Contracts are subject to audit prior to mainnet deployment. Audit reports will be published publicly.

#### **Strategy risk:**

Yield is generated by deploying USDC into external DeFi strategies. Those strategies carry independent risks, including smart contract vulnerabilities, liquidity constraints, and protocol failure. Losses in underlying strategies may be passed through to tranche holders via the loss waterfall.

#### **Oracle risk:**

NAV reporting depends on accurate data being delivered on-chain. The system is designed to halt operations if a report is stale or deviates beyond a configured tolerance, but oracle failure or manipulation cannot be entirely excluded.

#### **Custody risk:**

USDC is held via Mezzanine and Custodian smart contracts, distributing control across multiple parties rather than relying on a single key. Custody risk cannot be fully eliminated: funds can still become inaccessible or be lost due to contract vulnerabilities, misuse of privileged roles, or failures in the underlying custody infrastructure.

#### **Liquidity risk:**

mzUSD redemptions are subject to available protocol liquidity and the protocol’s mzUSD withdrawal limit.

If the Issuance Vault does not have enough immediately available USDC, liquidity may need to be rebalanced from the Reservoir before redemptions can continue. If the withdrawal limit is reached, further redemptions may be temporarily unavailable until capacity resets.

Tranche withdrawals for MLT and JLT are subject to an epoch-based delay.

#### **Swap risk:**

mzUSD is accessible via a swap function powered by a DefiLlama widget and routed through external liquidity pools. Swap pricing depends on available liquidity and market conditions at the time of the transaction. Users may receive less than expected if liquidity is thin or prices move between quote and execution.

#### **Yield risk:**

Yield is variable and depends on realized strategy performance. No tranche guarantees a positive return or return of principal.

{% hint style="danger" %}
**This documentation is for informational purposes only and does not constitute financial, investment, or legal advice. Protocol mechanics are subject to change before and after launch. Do your own research.**
{% endhint %}


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