Risk Management
A lot of money flowing from people to people, projects to projects, risk management is always the crucial part to invest safe. 😎
1. The characteristics of a token are somehow reflect its volatility and risk
Rank from low to high: BTC > ETH > public chain token > platform = farm token > NFT
BTC (lower risk): well known stored of value with the highest marketcap and history
ETH: first mover in smart contracts and DApps, with million dollars worth each NFTs on it
Chain token: each chain has its own ecosystem and the token itself is treated as gas fee. The success of it’s DApps and popularities refers to the value of the chain
Platform token: hold for cetain benefits, such as joining launchpad, farming extra rewards
Farm token: the token minted as rewards when you staking assets in the platform
NFT(higher risk): digital asset in image/audio/video format, traded on 2nd market for profit
💡 Volatility: how fluctuate the price of that asset can be Risk: whether the value will dramatically drop to zero in a sudden
2. It’s always a zero-sum game
an old joke called the 3rd rule of DeFi - you are sometimes the source of yield
when you’re not able to explain the source of APY(annual percentage yield, i.e. interest), your fund is actually the APY of others
Imagine the token you stake is the seeds and the farm tokens are what you can harvest. People tends to sell the yield to buy more seeds instead of hold the yields until price raise
Such ‘dump coin’ may experience a short time pump but eventually dump to a fair price
3. Don’t put all the eggs in one basket
diversified portfolio - diversify tokens, platforms and even chains to deposit your assets
buying diverse assets in a chain is not diversify, whenever a chain fails, all tokens suffer
depositing assets in multiple DeFi platforms to avoid a hack/rug leads to total loss
CeFi/CEX backed by known celebrities doesn’t minimize its risk, better diversify in platforms
4. Not your pocket until you take profit
taking profit lower your cost per token and increase your cash flow
never try to predict the high and the low, sell a portion when you reach certain % increment
shifting your profits to other potential projects sometimes gain more than forever holding
lock it for stablecoin farm to secure your profit and stable passive income
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