> For the complete documentation index, see [llms.txt](https://seivestorsnft.gitbook.io/seiventuresnft/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://seivestorsnft.gitbook.io/seiventuresnft/litepaper/sv-invest/risk-management.md).

# Risk management

Investing entails accepting risk – this applies particularly to cryptocurrencies and the emerging digital ecosystems around them. Risks come in all shapes and sizes, including unexpected market swings, rug pulls, hacks or simply human behaviours, ranging from simple error such as mismanagement of keys to misconduct such as fraud.

To turn the DAO into a sustainable organization, we have defined a set of principles setting out how we manage risks. This includes governance mechanisms and Treasury management, which will be set out in some more detail later in the document; as well as a set of limits which will govern exposures and risk taking at different levels. The limit system that we have thought out provides a neat feature to operationalize the principle of “1 NFT – 1 vote” articulated by the founder, while at the same time making sure that the Seiventures that form part of the Treasury Committee are equipped with a mandate enabling them to act on profitable opportunities.

The limits align themselves to the investment strategy set out above and are inspired by limit systems employed by trading operations of “traditional” financial services institutions. We intend to set up a limit framework including the following limit types, which will be further developed and voted upon by Seiventures

* Macro limits: Macro limits will be calibrated in line with the mandate of the Treasury Committee. The mandate will provide an absolute rule in which tokens the DAO will be allowed to invest its funds, and subject to review within the DAO in to-be-specified intervals. The limits will ensure that not all funds can be lost if the underlying project were to fail, whatever the reason. Initially, we expect to have a limited number of such limits, with larger limits including Sei and selected tokens from strategic partners, while smaller limits will be in place to enable us to operate in the native tokens of different DEX and lending platforms
* Trade limits: Trade limits will essentially be exposure limits on individual trades and may be expressed in absolute value or % of available macro limit or stack size. Even a seemingly profitable opportunity can turn against us given a change in the macro environment or the market, in particular in more uncertain or bearish market conditions. As such, these limits provide an important protection mechanism limiting the absolute downside that we can suffer from a single trade or group of related trades
* Loss limits: Complementing the exposure limits described above, stop-loss limits may be introduced selectively to avoid us going from a bad to a worse deal. These will be explored in function of our allocation strategy and be introduced in a targeted way
* NFT limits: The DAO’s NFT allocation will be governed by a mix of macro limits (overall allocation of Treasury funds to NFTs) as well as limits by origin and type of NFTs. There are various lucrative utility NFTs out there, yet in an early ecosystem not every project will survive to honour its obligations to the investors

Next to the limit framework set out above, we will further establish a set of rules governing risk taking itself. In particular, we will (at least initially) impose significant restrictions around the use of leverage and derivatives, which may be reviewed once operations of the DAO have successfully been launched.