> ## Documentation Index
> Fetch the complete documentation index at: https://docs.shores.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Risk

> The main risks of holding shUSD, and how Shores manages them.

Depositing in Shores involves risk, including the risk of losing some or all of what you deposit.

| Risk | How Shores approaches it |
| - | - |
| Borrower default | Underwriting, conservative sizing, borrower equity, first liens, active servicing, first-loss reserve |
| Collateral value | Real property with an independent valuation \[TBD: valuation standard] |
| Enforcement | First liens held for the benefit of the vault \[TBD: security agent / trustee] |
| Smart contracts | Independent audit before launch; admin controls \[TBD: audit firm, multisig, timelock] |
| Liquidity | No redemptions. Exit is on the secondary market, which may trade below NAV |
| Offchain operations | Segregated cells and independent oversight \[TBD] |
| Regulatory | Restricted jurisdictions, identity checks, counsel review |

## Risk factors

**Credit risk.** Borrowers may pay late or not at all. Real property collateral and first liens reduce this risk; they do not remove it.

**Collateral and enforcement risk.** Property values can fall. Enforcing a lien takes time, costs money and depends on local law and courts. Recoveries can be less than the amount owed.

**Yield risk.** 8% is a target. The actual yield can be lower, including zero.

**Liquidity risk.** There are no redemptions. You exit by selling shUSD on the secondary market after the lockup. The price can be below NAV, and there may not be enough buyers.

**Smart contract risk.** Contracts can contain bugs or be exploited, even after an audit.

**Offchain and counterparty risk.** Loans, funds in transit, servicers, fiduciaries and banks are offchain. Their failure, fraud or error can cause losses.

**Asset issuer risk.** The digital dollar asset used for deposits can be frozen by its issuer, or lose its peg because of events outside Shores' control.

**NAV risk.** NAV depends on valuations and reports from the offchain loan book. See [NAV, oracles and reporting](/technical/nav-oracles-and-reporting).

**Concentration risk.** An early vault may hold a small number of loans, so one default can have a large effect.

**Regulatory risk.** Laws can change and may restrict Shores or shUSD.

**Total loss.** You can lose everything you deposit.

The formal text is in [shUSD risk disclosures](/legal/risk-disclosures).


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