Having played DeFi for so many years, my deepest impression is: earning yields is fundamental, but the real threshold is being able to control the risks. Our lending arbitrage setup seems foolproof, but in reality, several deadly pitfalls are hidden in the details. One careless mistake can lead to significant losses.

The most critical risk is liquidation. When you collateralize BTC to obtain USD1, the liquidation threshold set by the system becomes the Damocles sword hanging over your head. If BTC's price drops sharply and the value of your collateral approaches the critical point relative to your loan, liquidation will be automatically triggered—no negotiation, no buffer. The system will directly sell your collateral to repay the debt. Even worse, you have to pay a liquidation penalty. Imagine this scenario: BTC crashes, your investment is already floating in loss, and even the collateralized coins are forcibly liquidated—that's true "being cut." Therefore, I habitually set the collateralization ratio very conservatively, never greedily max out the limit, and keep a close eye on the market 24/7. When volatility spikes, I immediately add to my position.

The second hidden pit is the interest rate. The entire arbitrage profit comes from Lista's 2% borrowing rate and the 20% deposit yield from the exchange. The problem is, neither of these rates is fixed or unchangeable. Lista made a crucial upgrade in September 2025 (IRM v1.1), which opened up the floating space for borrowing rates. When the interest rate rises, your profit margin shrinks, and the arbitrage opportunity instantly disappears.