A VERY SHORT NOTE ON TAKING AND MANAGING RISKS IN CRYPTO
I should say, welcome to Bear Market…
For starters, Bear Market is defined as a market that has lost more than 20% in a given year. Bitcoin is down -35% in 2022, ether is down -43% in 2022, and many other coins are down by much more..
So for the Crypto Enthusiasts and of course the techies, it is very important not to invest like the degens but categorize your risks… a breathing cryptocurrency may as well end up becoming unconscious😃(for real).
So how do we categorize risks in Crypto..
Following the same principles laid out by the pseudonymous user, DeFi Edge, categorizing risks involves the following steps:
KNOWN, KNOWN: These are the risks that you are aware of and can prepare for.
• You know it’s possible to be hacked, so you secure your funds with a Hardware wallet
• You know DeFi platforms can be exploited. You check to see if auditors have certified the protocol’s safety.
• Auto-compounders tend to be hacked. The yield might not be worth the additional risks.
These errors are the most preventable.
KNOWN, UNKNOWN: You know there’s a risk, but you’re not sure about its impact.
• A protocol has an anonymous founder. You’re not sure if they want privacy, or if they’re hiding a shady past.
• You’re putting your Bitcoin into CeFi for yield, but you don’t know how they’re generating that yield.
UNKNOWN, KNOWN: The risks are KNOWN to some, but they are UNKNOWN to you.
• Terra Luna and Anchor Protocol fall under this. Some of the insiders knew that Terra was a some. Several people called Terra Luna a Ponzi. They knew, but most of us didn’t.
• After this cycle, we’re all going to be more cautious of charismatic, cult leaders. The next generation though? They’re going to believe the hype and attack anyone that’s “fudding” their bags.
UNKNOWN, UNKNOWN: This is the hardest one and would fall under the black swan category.
These are situations we can’t predict or plan for.
What happened to Three Arrows Capitals falls under this. No one saw this coming. There weren’t any Exposé threads warning us about 3AC’s potential insolvency.
Crypto is in its nascent stage and also very volatile, believing hype or becoming a degen doesn’t really help or FOMO.. It always boils down to DYOR.
Crypto like every other digital innovation will not be giving any rollercoaster ride to the mainstream, no! but in the long run, Crypto will serve its purpose — DISRUPTING.
REMEMBER..
Always DeFi the Norms!
See ya!