C4 Risk Management & Mitigation 2 — Questions and Answers
Question 1: Which risk management technique involves spreading cryptocurrency holdings across multiple asset types to reduce exposure to any single asset?
- Concentration
- Diversification (Correct answer)
- Leverage
- Hedging
Correct answer: Diversification
Diversification reduces portfolio risk by allocating investments across different cryptocurrencies, sectors, or asset classes so a loss in one does not devastate the whole portfolio.
Question 2: A crypto exchange stores 95% of user funds in cold wallets. What risk does this primarily mitigate?
- Regulatory risk
- Hot wallet hacking risk (Correct answer)
- Liquidity risk
- Smart contract risk
Correct answer: Hot wallet hacking risk
Cold storage keeps funds offline and inaccessible to internet-based attackers, drastically reducing the risk of hot wallet breaches.
Question 3: What is a 'rug pull' in the context of DeFi risk?
- A smart contract audit failure
- Developers abandoning a project and stealing investor funds (Correct answer)
- A sudden regulatory ban
- An oracle price manipulation attack
Correct answer: Developers abandoning a project and stealing investor funds
A rug pull occurs when project developers drain liquidity or funds from a protocol and disappear, leaving investors with worthless tokens.
Question 4: Which control best mitigates the risk of an employee transferring cryptocurrency to an unauthorized wallet?
- Single-signature authorization
- Multi-signature authorization requiring multiple approvers (Correct answer)
- Hardware wallet storage
- Daily transaction logs
Correct answer: Multi-signature authorization requiring multiple approvers
Multi-signature (multisig) wallets require approvals from multiple parties before a transaction is broadcast, preventing unilateral unauthorized transfers.
Question 5: What type of risk arises when a cryptocurrency's liquidity is insufficient to execute a large trade at the expected price?
- Counterparty risk
- Market liquidity risk (Correct answer)
- Operational risk
- Settlement risk
Correct answer: Market liquidity risk
Market liquidity risk occurs when thin order books cause significant price slippage when placing large buy or sell orders.
Question 6: In a Proof-of-Work network, what percentage of hash rate must an attacker control to execute a 51% attack?
- 25%
- 33%
- 51% (Correct answer)
- 67%
Correct answer: 51%
An attacker who controls more than 50% of the network's total hash rate can rewrite recent transaction history and double-spend coins.
Question 7: Which document outlines an organization's procedures for recovering cryptocurrency operations after a major security incident?
- Whitepaper
- Business Continuity Plan (BCP) (Correct answer)
- Tokenomics report
- Annual audit report
Correct answer: Business Continuity Plan (BCP)
A Business Continuity Plan details recovery procedures, key personnel responsibilities, and steps to restore operations after a disruptive event.
C4 Risk Management & Mitigation 2
Which risk management technique involves spreading cryptocurrency holdings across multiple asset types to reduce exposure to any single asset?