> For the complete documentation index, see [llms.txt](https://docs.butane.dev/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.butane.dev/reference/risks.md).

# Risks

What can go wrong when you borrow, stake or swap.

Using Butane puts your assets at risk. Read this before you borrow, stake or swap.

## Liquidation

If the value of your collateral falls, or your debt grows with interest, your CDP's health factor can drop below 1. Anyone can then liquidate it: they repay your debt and take collateral worth more than they repaid, up to the market's max liquidation return. A buffer above 1, and **Safe mode** when you borrow, reduce this risk but do not remove it. See [Health factor](/use-butane/borrow.md#health-factor).

## Redemption

If the market borrow rate rises above your rate cap, anyone can redeem against your CDP: they repay part of your debt and take collateral worth the repayment, adjusted by the market's redemption share. Your debt goes down along with your collateral, but you no longer hold the position you chose. See [Rate cap](/use-butane/borrow.md#rate-cap).

## Changing rates

Borrow and savings rates are set by governance and can change at any time. A higher borrow rate raises what your CDP pays, up to its cap or the savings rate, whichever is higher, and a lower savings rate reduces what your stake earns.

## Synthetic prices

A synthetic tracks the price of its underlying asset. On DEXs it can trade above or below that price, especially when markets move fast or liquidity is thin.

## Treasury capacity

Selling a synthetic to the treasury depends on the reserves the treasury holds. If they run low, you may not be able to swap the amount you want, and selling to the treasury can carry a redemption fee. See [Swap](/use-butane/swap.md).

## Bad debt

If collateral loses value faster than CDPs can be liquidated, a CDP's debt can exceed its collateral. The treasury can absorb such positions, but synthetics are only as well backed as the collateral and reserves behind them.

## Smart contracts

Butane runs on Cardano smart contracts that hold your collateral, stakes and the treasury's reserves. A bug in those contracts could lead to loss of funds.