C4 Risk Management & Mitigation 2

Question 1

Which risk management technique involves spreading cryptocurrency holdings across multiple asset types to reduce exposure to any single asset?

Accepted Answer

Diversification

Answer

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?

Accepted Answer

Hot wallet hacking risk

Answer

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?

Accepted Answer

Developers abandoning a project and stealing investor funds

Answer

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?

Accepted Answer

Multi-signature authorization requiring multiple approvers

Answer

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?

Accepted Answer

Market liquidity risk

Answer

Market liquidity risk occurs when thin order books cause significant price slippage when placing large buy or sell orders.

(C4) CryptoCurrency Certification Consortium Practice Test

(C4) CryptoCurrency Certification Consortium Practice Test

C4 Risk Management & Mitigation 2