Liquidation risk
If your collateral value falls below the required LTV threshold on Morpho, liquidators can repay your debt and claim your collateral. Depending on how far underwater the position is, you may receive little or nothing back. The protocol enforces a 0.25% buffer below Morpho’s liquidation LTV and validates your LTV on every leverage and borrow operation. This gives your position a margin before liquidation becomes possible, but it does not protect you from large or fast price moves. Correlated markets: both sides move together, which limits liquidation risk under normal conditions. However, depegs, redemption failures, or oracle lag can still push your LTV past the threshold. Non-correlated markets: standard market risk applies. A significant drop in collateral price relative to the loan token can bring you close to or past liquidation quickly. Position sizing and leverage choice matter significantly here. You can reduce liquidation risk at any time by adding collateral or repaying debt without closing the position.Interest rate risk
Profitability on correlated positions depends on the spread between your collateral yield and your borrow rate. Morpho borrow rates are variable and tied to pool utilization. If utilization spikes and borrow costs rise while your collateral yield stays flat or falls, the spread can compress or turn negative. Monitor pool conditions and be ready to repay or close if the spread no longer justifies staying in.Smart contract risk
Spiral Stake interacts with several systems: Morpho Blue, external swap aggregators, oracle feeds, and the UserProxy delegation pattern. A bug or exploit in any of these could affect your funds. The protocol mitigates this through position isolation (one UserProxy per user), reentrancy guards on all state-changing functions, whitelisted swap routers only, and immutable safety parameters. Three independent audits have been completed. None of this eliminates smart contract risk entirely.Collateral and yield source risk
For correlated positions, your collateral token depends on an underlying protocol to generate yield. If staking rewards change, protocol fees are adjusted, or the underlying yield source has a smart contract issue, expected returns can drop or the token can depeg. Understand what is backing your collateral before committing capital.Liquidity and exit risk
Under stressed market conditions, swap liquidity between your collateral and loan token can dry up. Exiting a large position may become expensive due to slippage or temporarily impossible if routes are unavailable. The protocol enforces slippage protection on all swaps via a minimum output parameter. If no route is available at close, you can still unwind manually: withdraw collateral in portions, convert off-protocol, repay debt incrementally. Size positions with available liquidity in mind.Oracle risk
LTV calculations rely on Morpho’s oracle infrastructure. Stale prices, oracle manipulation, or misconfiguration can cause incorrect LTV assessments, either allowing undercollateralized positions to remain open or triggering liquidations that should not have occurred. This risk is inherited from Morpho and the oracle providers for each market.Direct Morpho interaction
Do not supply collateral or repay debt directly to Morpho on behalf of your UserProxy. Always use the protocol’s functions:supplyCollateral() and repay().
If you bypass the protocol and interact with Morpho directly on behalf of the userProxy contract of your position, the protocol’s internal accounting will not be updated. Those amounts will be misidentified as yield, and you will be charged a yield fee on funds that were simply your own deposits or repayments.