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