Risks

Liminal is designed to minimize risk while providing real, market-neutral yield. However, as with any protocol operating on advanced onchain trading infrastructure, some risks remain. This page outlines the primary risks associated with using Liminal and how the system is structured to manage or mitigate them.

1. Market Risk is Minimized, Not Eliminated

Liminal relies on delta-neutral strategies to remove exposure to market direction. However, certain market conditions can still affect short-term performance:

• Sudden spikes in volatility may temporarily affect balance between spot and perp positions

• Sharp funding rate reversals can reduce or negate expected yield

Liminal actively rebalances to maintain neutrality, but unpredictable events can still impact results.

2. Negative Funding Rates

Liminal captures yield from funding payments in Hyperliquid’s perpetual markets. These rates are dynamic and may sometimes turn negative:

• Short-term dips can occur when funding turns negative on specific assets

• Over the long term, average funding remains net positive across most market conditions

Note: Liminal charges a performance fee only when gross funding PnL is positive. If no yield is earned, users pay no fees.

3. Infrastructure Risk (Hyperliquid)

Liminal operates entirely on Hyperliquid’s infrastructure, specifically:

• HyperCore for real-time execution across spot and perpetual markets

• Native liquidity and price feeds provided directly by Hyperliquid

As a result, when Hyperliquid is down or under maintenance, Liminal is also affected. This includes potential pauses in execution, updates, or withdrawals. While Hyperliquid has demonstrated high reliability and is built for high-frequency trading, this dependency means any infrastructure disruption may impact strategy performance or capital access.

4. Execution Risk

Liminal automates strategy execution across multiple market layers:

• Entry and exit of spot and perp positions

• Dynamic rebalancing and position sizing

• Spread management between markets

Market depth, latency, or sudden slippage can occasionally cause execution inefficiencies. Liminal is engineered to monitor and reduce these effects automatically.

5. Liquidity Constraints

Liminal processes deposits and withdrawals in real time, but during high-volatility or limited-liquidity scenarios:

• Withdrawals may be slightly delayed to unwind positions safely

• Price discrepancies between markets may affect the final execution value

Users always maintain the right to withdraw their capital, although the protocol may optimize the timing of exit execution to preserve strategy efficiency.

6. Auto-Deleveraging (ADL) Risk

Auto-Deleveraging (ADL) mechanisms exist across all major perpetual futures exchanges, not just Hyperliquid. They act as a last-resort safeguard to prevent systemic bad debt when normal liquidation processes fail under extreme volatility.

On Hyperliquid, liquidations first occur directly through the order book, where the system attempts to close positions progressively based on available market depth. If remaining positions cannot be absorbed, the Hyperliquid Liquidity Provider (HLP) intervenes as a backstop liquidator to stabilize the market. Only if the HLP itself becomes undercollateralized does the ADL mechanism trigger, force-closing positions from profitable counterparties to restore balance.

Although such situations are extremely rare, they can lead to the early closure of certain positions, including Liminal’s perpetual hedges. This may temporarily affect realized PnL or yield consistency during periods of severe market stress.

Liminal continuously monitors market conditions and volatility to assess and manage risks related to potential ADL events, but users should understand that ADL is an exchange-level safeguard fully managed by Hyperliquid and outside of Liminal’s control.

While the likelihood of ADL can be minimized through prudent risk management, it can never be fully eliminated.

7. Smart Contract Risk

Smart contract risk applies only to Liminal’s tokenized products (xTokens). These vaults rely on audited smart contracts responsible for minting, redemption, and strategy execution logic.

The Customized product does not rely on smart contracts, it operates natively on HyperCore’s execution layer, where each user’s strategy is executed on a dedicated account or subaccount.

8. Institutional Authorization Risk

Institutional users authorize Liminal to execute strategies via Hyperliquid’s agent system. Although:

• Agents are permissioned to place trades

• They cannot access or withdraw funds

Users should understand and trust the delegation system before enabling agent-based execution.

9. Agent Expiration Risk

Institutional execution relies on Hyperliquid’s agent system, and each agent has a built-in expiration date. Once an agent expires, Liminal can no longer execute trades on behalf of the user, leaving positions at risk of imbalance or liquidation. Liminal notifies institutional users via Telegram around 10 days before expiration. From that moment, users can renew their agent at any time within this window, and should do so promptly to ensure uninterrupted strategy execution.

For users who prefer to avoid this renewal requirement and its associated risks, switching to Regular mode provides a simpler experience without agent expiration.

10. Asset Volatility Risk

Some strategies may include highly volatile or low-cap assets, for example, meme coins like FARTCOIN. These assets tend to:

• Trigger more frequent rebalancing

• Increase execution costs due to price swings and low liquidity

• Reduce net yield over time despite attractive funding rates

While such assets can offer higher short-term returns, they carry a higher risk of instability. Users should carefully assess the risk/reward profile of each strategy before depositing.

11. Stablecoin Risk (USDC)

All deposits on Liminal are in USDC. Users should consider:

• Risk associated with the issuer (Circle)

• The possibility of depegging during extreme market events

While USDC is broadly trusted, no stablecoin is completely risk-free.

How Liminal Manages Risk

Liminal employs several mechanisms to reduce exposure and preserve capital integrity:

• Automated position rebalancing and liquidation avoidance

• Low-leverage strategy design

• Real-time dashboards for visibility into performance

• Always-on withdrawal access with market-aware safeguards

Final Note

All yield strategies involve risk. Liminal is built to minimize it, but not eliminate it. There are no smart contracts at this time, and the system is tightly integrated with Hyperliquid's execution engine.

Always assess your personal risk tolerance, and only deposit capital you are comfortable managing.