Last updated: March 6, 2026

Risk Disclosures

1. Introduction

This document describes the material risks associated with using the Navy protocol, a non custodial, open source exchange for tokenized real world assets ("RWAs"). These disclosures apply to all features including Market, Vault, and Lending (collectively, the "Features"). By interacting with the protocol, you acknowledge that you have read, understood, and accepted the risks described herein.

2. Non Custodial and Open Source

Navy is non custodial. Your assets remain in smart contracts that only you can withdraw from. Neither Navy Foundation nor Navy Labs has custody, possession, or control of your digital assets at any time. The protocol smart contracts are open source, deployed on public blockchains, and operate autonomously. Anyone can verify the code, audit the logic, and interact with the contracts directly without using the interface.

While the non custodial and open source design eliminates counterparty custody risk, it also means that no one can reverse transactions, recover lost keys, or freeze assets on your behalf. You are solely responsible for the security of your wallet and private keys.

3. General Risks

  • Cryptocurrency Volatility. The value of digital assets can fluctuate dramatically. You may lose all or substantially all of the value of assets deposited into the protocol.
  • Regulatory Uncertainty. The legal status of decentralized finance protocols and tokenized RWAs varies by jurisdiction and is evolving. Changes in law or enforcement could affect the protocol or your ability to use it.
  • Technological Risk. Blockchain networks are subject to congestion, downtime, forks, and disruptions beyond the control of Navy Foundation.
  • Counterparty Risk. Tokenized assets reference offchain assets managed by third parties. The performance and solvency of these managers are outside the control of Navy Foundation.

4. Smart Contract Risks

The protocol is composed of smart contracts that undergo internal review and, where applicable, independent third party security audits. No audit can guarantee the absence of bugs or exploits. Risks include:

  • Undiscovered vulnerabilities that could result in partial or total loss of deposited assets.
  • Reentrancy attacks, overflow errors, access control failures, and other exploit classes.
  • Risks from interactions between Navy contracts and external contracts or token standards.

Smart contract exploits may be unrecoverable. Navy Foundation bears no liability for losses arising from such events.

5. Oracle and Pricing Risks

Navy relies on a risk pricing oracle developed by Navy Labs. The oracle maps each tokenized asset to proxy baskets of publicly traded equivalents (BDCs, CEFs, mREITs) and adjusts with live onchain signals. Pricing risks include:

  • Model Risk. The oracle is a quantitative estimate. Outputs may diverge from true fair value, particularly for illiquid assets. As a single engine provider, there is model concentration risk.
  • NAV Staleness. NAV feeds for tokenized assets may not update in real time. Stale data can result in mispriced transactions or inaccurate collateral valuations.
  • Oracle Manipulation. Although safeguards exist, oracle feeds may be subject to manipulation or data feed interruptions.

6. Market Risks

  • Illiquidity. Tokenized RWAs may have limited secondary market liquidity. You may be unable to sell at desired prices or within desired timeframes.
  • Discount Widening. Tokens may trade at a discount to NAV. Discounts may widen during periods of market stress or redemption pressure.
  • Redemption Delays. Redemption into underlying assets may be subject to notice periods, gating mechanisms, or lock up restrictions imposed by underlying managers.
  • Credit Risk. Underlying RWAs may include debt instruments. Default or deterioration in credit quality may reduce the value of tokenized positions.

7. Feature Specific Risks

7.1 Market

Navy Market is a non custodial order book with offchain matching and onchain settlement.

  • Order Book Liquidity. Depth may be limited for newly listed or thinly traded assets.
  • Slippage. Large orders may execute at prices materially different from expected.
  • Settlement Risk. Onchain settlement depends on network conditions and may be delayed.

7.2 Vault (DDMM)

The DDMM (Decentralized Designated Market Maker) vault accepts USDC deposits and market makes across all listed assets. It buys tokens at risk priced discounts.

  • NAV Impairment. If underlying assets suffer a loss event, the vault takes a loss.
  • Withdrawal Delays. If the vault is heavily deployed, withdrawals depend on token liquidation.
  • Concentration Risk. Adverse developments in a single asset may disproportionately affect vault performance.

7.3 Lending and Short Selling

Lend your RWA tokens and earn borrow interest. Borrowers use them to short sell with USDC margin.

  • Short Liquidation. Short sellers whose margin falls below maintenance thresholds may be liquidated at unfavorable prices.
  • Borrowing Rate Volatility. Rates are determined by utilization and may fluctuate suddenly.
  • Lending Pool Risk. Lenders are exposed to the risk that borrowed tokens may not be returned in full if liquidations do not fully cover the borrowed amount.
  • Withdrawal Liquidity. Lenders may be unable to withdraw if pool utilization is near 100%.

8. Third Party Risks

  • Underlying Fund Managers. Tokenized assets represent interests managed by third parties. Mismanagement, fraud, or insolvency could result in total loss.
  • Payment Networks and Custodians. Settlement and custody of underlying assets depend on traditional financial infrastructure.
  • Infrastructure Providers. The protocol relies on blockchain networks, RPC providers, and other infrastructure that may experience downtime or degradation.

9. User Responsibility

  • Self Custody. You are solely responsible for your private keys, wallets, and credentials. Navy Foundation does not custody assets, cannot recover lost keys, and cannot reverse onchain transactions.
  • Own Research. You must conduct independent due diligence before using any feature or transacting in any asset. Nothing provided by Navy constitutes a recommendation.
  • Transaction Finality. Transactions are irreversible once confirmed onchain. Verify all details before submission.
  • Compliance. You are responsible for ensuring your use complies with all applicable laws in your jurisdiction.

10. No Professional Advice

Nothing in the Navy protocol, its documentation, or interfaces constitutes financial, investment, legal, or tax advice. Consult qualified advisors regarding your specific circumstances.

11. Risk Mitigation

Navy Foundation employs measures to reduce risk, including:

  • Security Audits. Smart contracts undergo internal review and independent audits. Reports are published where permitted.
  • Open Source. All protocol code is published under open source licenses for independent verification and community review.
  • Public Methodology. Risk pricing methodology and protocol mechanics are documented and published.
  • Model Validation. The risk oracle undergoes backtesting, stress testing, and validation.
  • Monitoring. Automated systems track protocol health, pricing anomalies, and unusual activity.
  • Governance. Protocol parameters and upgrades are subject to governance by staked Navy holders.

12. Assumption of Risk

By using the Navy protocol, you acknowledge and assume all risks described in these disclosures. To the fullest extent permitted by law, Navy Foundation and its affiliates shall not be liable for any damages arising from your use of the protocol, including loss of funds, loss of profits, or business interruption.

These Risk Disclosures may change at any time without notice. Continued use of the protocol constitutes acceptance. For questions, contact Navy Foundation at legal@navy.sh.