Smart contract risks.
Algem had its protocol and smart contracts audited by Quantstamp, leader in Web3.0 security. Be aware that a security audit does not guarantee the total infallibility of a protocol. Risks can always be present. Do not stake assets that you cannot afford to lose on Algem.
nASTR loss of peg.
On Algem protocol, there is always a ratio 1:1 for minting nASTR and returning it. No matter the ratio of the nASTR/ASTR pair on the market. Users can always redeem the same amount of ASTR from nASTR tokens. However if nASTR holders use their tokens in DEXs to provide liquidity, they face the possibility of impermanent loss and depeg like any farming in DEXs.
To mitigate this risk, users can perform arbitrage strategies between DEXs and Algem protocol using swap, stake and unstake functions. In this way, users have financial incentives to keep the ASTR/nASTR peg and stabilize the ecosystem. See the nASTR:ASTR ratio section.
Impermanent loss on DEX
"In essence, impermanent loss is a temporary loss of funds occurring when providing liquidity. It’s very often explained as a difference between holding an asset versus providing liquidity in that asset. Impermanent loss is usually observed in standard liquidity pools where the liquidity provider (LP) has to provide both assets in a correct ratio, and one of the assets is volatile in relation to the other, for example, in a Arthswap ASTR/WETH 50/50 liquidity pool.
If WETH goes up in value, the pool has to rely on arbitrageurs continually ensuring that the pool price reflects the real-world price to maintain the same value of both tokens in the pool. This basically leads to a situation where profit from the token that appreciated in value is taken away from the liquidity provider. At this point, if the LP decides to withdraw their liquidity, the impermanent loss becomes permanent." See "What is Impermanent Loss? DEFI Explained" from Finematics for more.
For risks associated with using nASTR on other protocols, see related sections: