Crystal Clear Educational Series 5: Risk Management & Appetite 😏

Learn the ins and outs of the risks in DeFi

Knowing Your Risks

Risk is an important part of your portfolio, and understanding the inherent uncertainties of investing in a DeFi project is vital to ensure that you have a positive and profitable experience. None of this is by any means financial advice, but it should empower you to make more educated decisions about your portfolio. We will outline some of the risks associated with DeFi below:

The Big One: Rug Pull

One should always err on the side of caution with new anonymous DeFi projects that pop up out of the blue promising massive returns on investment, especially with an elusive or uninvolved core team.

There are auditing companies that also take a look at the source code for smart contracts and deliver a report for investors that highlights any potential security flaws in the code itself. There are also plenty of tokens who pass audits who still fall victim to exploitation, please do not use an audit as a hard and fast rule that a project is safe.

Doing proper research, reading documents and understanding the basics of projects and looking for audits, community engagement and other green flags can lead to a nice profit, but newer projects are inherently more risky, always do your own research, and don’t get caught up in FOMO!

Volatility

It is very easy to get caught up in the “Big green candle, stonks only up” mentality, but this is a dangerous one. With any DeFi or other crypto purchase, if you wish to perform speculative investment (buying low, selling high) ensure you understand the tokenomics of the token you are purchasing, as it is easy to get burned if you do not understand the protocol.

Impermanent Loss

Risk Appetite

No One Can Tell You What You Should or Should Not Invest

What products are available on PolyCrystal to the varying degrees of risk appetite?

Low Risk appetite

If you wish to gain exposure to PolyCrystal because you wish to use your $CRYSTL to stake for a non-native like $USDC, one may choose to create a stablecoin pairing and stake those LP tokens to earn $CRYSTL, and take their earnings and stake those earnings in the $USDC pool. With this method, you have no exposure to the price action of $CRYSTL, as you earned it through staking an LP token which has very little if any variation in value, but you still get to enjoy earning the token and staking it for another stablecoin which also does not vary in value. The rewards with this method will not be life changing, but you have little to no exposure to price fluctuations, except in that they affect your overall earning potential.

Medium Risk appetite

If you wish to have some hard and fast earnings, but don’t want to go full degen mode, one could create LP tokens with a mature token (like $ETH, $MATIC, $WBTC and so on) with a stable coin. These farms have higher APRs usually (definitely subject to change and there are exceptions to all rules) than stable/stable LPs, which serve to print more $CRYSTL for you to invest. The risks here are that you could be subject to impermanent loss if there are significant changes in the price of $ETH while you have staked your LP tokens.

High Risk appetite

For someone with a higher than normal risk appetite, one could stake a variable/variable LP pairing ($ETH/$BANANA, $JDI/$MATIC etc, keep in mind that the less established projects tend to carry a significantly higher degree of price volatility, and in turn, risk) as these farms print $CRYSTL at a significantly higher rate. This allows you to earn more $CRYSTL for staking, but you are more exposed to significant price changes in both sides of the LP pairing!

This is just a brief overlook of risk appetite, it is an impossible topic to truly teach upon, as everyone is their own person, but given the wide array of services out there, this should give you a little more insight into what is considered “More Risky” and what is considered “Less Risky” when it comes to setting up your portfolio.

The important thing to remember is at the end of the day your funds are your own! You may choose to do with them what you please. Nobody enjoys losing money, especially when it is money that you couldn’t afford to move. DeFi is an incredible space to begin taking control over your own assets, but please bear in mind that no one will ever provide you with financial advice (this article included, always do your own research, read docs, and make informed decisions). If you ever have any questions about our different products, our telegram community is extremely active and enjoys sharing different strategies and having open discussions about ways to use the protocol.

Happy investing, and BE SAFE!

PolyCrystal Telegram: https://t.me/polycrystalfin

PolyCrystal Website: https://polycrystal.finance/

This article was written by King D

Telegram Handle: @King_D3