Dallas Mavericks owner and well-known Dogecoin (CRYPTO: DOGE) bull Mark Cuban recently shared four factors that every cryptocurrency investor or speculator should use to gauge risk for any token.
What Happened: The “Shark Tank” fame investor earlier this month shared a tweet by Twitter (NYSE:TWTR) user CryptoJoe that laid down four factors vital to the price determination of Lido Staked ETH (StETH).
Cuban said these could be used to “understand [the] risk for any token.”
Every crypto investor or speculator should use these 4 factors to understand risk for any token https://t.co/qO72vPtxKZSee Also: How To Get Free NFTs— Mark Cuban (@mcuban) June 10, 2022
Why It Matters: In April, Cuban revealed that he held 108 cryptocurrencies in his ETH wallet, with the largest positions in NFT platform Rarible’s governance token, Rarible (RARI).
The Factors: Among the factors mentioned by Cuban, liquidity took the top spot. Liquidity conditions are dynamic and change with price.
Similarly, volumes and liquidity of the entire market can also change — the lesser the liquidity, the higher the risk for investors.
A peril independent of demand and liquidity risks is smart contract risk, which could arise from the presence of inherent bugs in the contracts.
The merge risk highlighted in the Twitter post is relevant in the case of StETH as a delayed merge or shifting of Ethereum to a proof-of-stake model would result in an additional cost of liquidity as StETH tokens would remain locked for longer.
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