# Risk Mitigation

REBALANCE recognizes the importance of risk mitigation within its platform, addressing key concerns such as smart contract risk, counterparty risk, and the risks inherent in interacting with underlying protocols.&#x20;

Here's how REBALANCE tackles each of these challenges:

### Smart Contract Risk&#x20;

Given that smart contracts are crucial to DeFi protocols yet susceptible to bugs, REBALANCE adopts a dual strategy for risk mitigation:&#x20;

* avoiding proxy
* limited admin functionality
* multisig-admin
* timelocks for applying changes
* conducting audits&#x20;
* using realtime monitoring (Hacken Extractor)

Audits are performed by independent experts who scrutinize the smart contract code for vulnerabilities, while bug bounties encourage the community to uncover and report bugs, rewarding them for their contributions. This blend of expert review and community engagement fortifies the security of REBALANCE's smart contracts.

### Counterparty Risk

Counterparty risks are evaluated based on above criteria and technical requirements such as the presence of multisig and timelock mechanisms\* (or DAO-based management) and the team's reputation/availability of investor funds.

_\*Multisig enhances security by requiring multiple approvals for transactions, and timelocks introduce a delay in executing certain actions._

### Market Risks

Assets lacking solid market history, low liquidity, association with teams of dubious reputation, or carrying the threat of a "rug pull" are systematically rejected.&#x20;

This careful selection process is crucial for averting the accumulation of bad debt within the protocol.

In essence, Rebalance.finance's risk management framework is a comprehensive strategy designed to navigate and mitigate the risks inherent in DeFi protocols. &#x20;
