In order to discuss the risks of using Contango it’s worth recapping some key features of the protocol:
Contango prices perps via spot and money markets, so it’s reliant on the liquidity of these markets (Uniswap, Aave, etc.). The long-term vision is to aggregate as many markets as possible to offer the best liquidity — read: price — for perps in DeFi.
Contango doesn’t have an order book, nor liquidity pools, which means there’s no liquidity held on the protocol (no TVL).
Liquidations are not carried out on Contango, but on the underlying money markets.
So, when using Contango, a trader should bear in mind the following risks:
Market risk, i.e. sudden movements in price that can result in potential liquidations.
Interest rate risk, i.e. sudden movements in the rates that can result in potential liquidations.
Multiple smart contract risk, i.e. Contango’s, plus any underlying money market (Aave, etc.). Contango has already been fully audited by ABDK.