Risks

Income-share notes are illiquid and high risk. There is no guaranteed return, minimum payment or promised rate, and holders can lose some or all of their principal. This list is not exhaustive.

Income risk. Payments follow one person's income. Below the hurdle nothing is due, and a hardship pause moves the end date instead of adding penalties. A beneficiary may hide income; the income definition, deemed income and the loss of pause rights limit that, but do not remove it. Death or permanent disability ends the note, and insurance, if any, covers at most the unreturned principal. The cap, and in consumer mode the APR ceiling, limit how much a note can return; nothing limits how little.

Legal and regulatory risk. The structure is untested with the FSRA, and the licence may be delayed, conditioned or refused. A note may be re-characterised, for example as consumer credit or a collective investment, which could change future terms, exclude countries or stop the pilot.

Smart contract risk. The engine is new, unaudited and has run only on a local test chain. A bug can lock funds or let them be taken, and the contracts cannot be upgraded to patch it in place. Audits, a bug bounty and monitoring come before mainnet; they reduce the risk without removing it.

Operator failure. DF3F may run out of money or stop. The trustee and the named backup servicer keep the notes serviced, but with fewer people, slower reporting and less chance of recovering hidden income, which needs courts.

Stablecoin and network risk. Payments settle in USDC on Arbitrum. The stablecoin issuer can freeze addresses, including a series contract; the network can halt or be upgraded; each series is fixed to one asset. The obligation is in USD, but what arrives is a token.

Liquidity. There is no secondary market in the pilot. Voluntary transfers are off, and an exit before the end of the note depends on a buyout by the issuer. Expect to hold for the full term.

Privacy limits. Identities are not on-chain, but amounts and timing are, forever. The share and the hurdle are public, so anyone who learns which series belongs to which person can work out that person's income above the hurdle.

Keys and forced transfers. Positions live in self-custody wallets. After a lost key, inheritance or a court order, the transfer agent can move a position to a new eligible address after checks off-chain and a public seven-day notice, during which the owner can cancel a lost-key request and the trustee can veto any request. A compromised transfer agent key and an absent trustee could still move positions wrongly.