3 Reasons Why Diversification Pays Off in Web3

Diversified investment products offered by Arch provide investors with automatic diversification, easier risk management, and significant time and effort savings — and at times of crisis can become survival tools. More on this below

Crypto markets are volatile, making it challenging for investors seeking stable, long-term growth. In many ways, investing in cryptocurrencies is similar to the early-stage startup ecosystem, offering immense growth potential but also high risks. To tackle the challenge of diversification, tokenized investment products like Arch tokens and portfolios provide a solution. These products function like TradFi index funds, helping you spread investments across multiple assets to mitigate risks, while still reaping the potential of a booming industry or sector.

Let’s dive into three specific reasons why you should diversify your portfolios with Arch tokens.

Can you spot the winner?

Just like stock picking, token picking is particularly hard. Let's go back to early 2021 when Decentralized Exchanges were thriving, competing for TVL, and governance tokens were all the rage.

Sushiswap’s $SUSHI is mooning and ape in only to see consistent declines all while Curve’s $CRV is thriving and Uniswap’s $UNI slowly, but surely regains the lead.

This example from one particular segment highlights the unpredictable nature of the crypto market, where determining the ultimate winner is challenging. The lesson here is that if you are bullish on a sector’s growth potential, it might be better to build a broad exposure to it instead of trying to guess which individual project will be the next big thing.

This is precisely what the Arch Exchanges Index tracks and you can invest in with the Arch Ethereum Web3 Token ($WEB3), in the example above $SUSHI has a return of -31% while $WEB3 30%.

Black-swans are not that rare in crypto

Black swan events can disrupt even the most seemingly stable investments, leaving investors vulnerable to substantial losses. Suppose an extreme scenario, we are back on May 9, 2022, and all your savings are invested in a single token, Terra-Luna ($LUNC).

It's easy to envision the devastating impact of a lack of diversification when, within a few hours, the value of your entire investment plummets to zero. Not only did the native token suffer, but the entire Terra ecosystem, including their stablecoin, collapsed.

It's the same as having all your investment portfolio in a single early-stage startup. Your entire investment could be wiped out if that startup encounters difficulties or fails.

This is where products such as Arch Blockchains Token ($CHAIN) and the Arch USD Diversified Yield Token ($ADDY) come in. By spreading investments across multiple protocols and strategies, $CHAIN help investors manage risk and potentially offset losses caused by unforeseen events. In this case, having $LUNC generates a return of -100% while $CHAIN has a -65%.

Exploits and hacks have a lasting impact on tokens

Exploits and hacks in crypto have lasting consequences for tokens and protocols. Recent incidents, like Euler Finance's $200M hack, highlight the challenges affected projects face.

The top five hacks in dollar terms (like BeansTALK and CREAM Finance) have caused a 96%+ decline in each protocol's total value locked (TVL), indicating a loss of confidence beyond depressed asset prices.

Recovering from hacks is historically tricky due to reputational damage. While some projects have continued to build and implement recovery measures, attracting deposits remains challenging. Other projects folded entirely following their hacks, indicating the severity of the impact — all while an index product like Arch Ethereum Web3 ($WEB3) generates a return of 22% compared to -41% from $EULER.

In conclusion, diversification in crypto isn't just an investment strategy; it's a survival tool. Embrace it, and you'll be well on your way to navigating this exciting market.

Arch: The path to a diversified crypto portfolio

By opting for index-style crypto products, investors can reduce costs and enjoy more predictable returns while increasing their exposure to market-wide gains.

Arch's advantage lies in its commitment to providing a comprehensive, tailored solution for a diversified portfolio.

As you navigate the ever-changing crypto market, consider the advantages of index-style products. By incorporating them into your investment strategy, you can build a diversified and manageable portfolio that maximizes your potential for long-term success.

Learn more about our products at: https://www.arch.finance/best-of-web3?utm_campaign=divpayoff&utm_medium=social&utm_source=webarticle