Diversification

Diversification is one of the most important risk tools in Shift’s arsenal. It means spreading capital across many assets, protocols, and blockchains to avoid overexposure to any single point of failure.

In DeFi, where volatility is high and failures happen fast, diversification helps ensure that if one part of the ecosystem breaks – a token collapses, a protocol is exploited, or a blockchain goes offline – only a small portion of the portfolio is affected.

Managing liquidity concentration

Shift enforces strict limits on how much capital can be allocated to any single asset, protocol, or blockchain – even if it’s a top-rated one. These Allocation Limits and Thresholds (ALTs), set by the Investment Committee, prevent a dominant position from putting the entire portfolio at risk.

It’s not just about protocol-level exposure. Shift also tracks cross-platform dependencies. For example, if multiple protocols in the portfolio rely on the same stablecoin or blockchain, that’s a hidden concentration risk. The portfolio is structured to avoid these overlaps and ensure true diversification across three layers: assets, protocols, and chains.

Limiting exposure to specific risks (like rug pulls)

Shift also diversifies based on the type of risk, not just the number of positions. A good example is rug-pull risk – when a project’s developers vanish or steal funds. If a protocol has a higher rug-pull risk (for example, if the team is anonymous or the contracts aren’t time-locked), Shift either avoids it entirely or caps its share to a very small percentage.

The same goes for other high-risk categories:

• Algorithmic stablecoins that might depeg

• Governance tokens that could crash on negative news

• Small-cap protocols with little audit history

For each of these, Shift sets specific exposure limits. These tailored rules ensure that no single failure scenario – even a total wipeout – can cause significant portfolio damage.

Real-time monitoring of diversification

Diversification isn’t a one-time setup. The portfolio is monitored continuously to make sure allocation limits are always in check.

If a token suddenly spikes in value, it could exceed its allowed share in the portfolio. Shift’s system detects this in real time and can trigger rebalancing – trimming the position or adjusting other allocations automatically or semi-automatically.

The risk team and Investment Committee also receive regular reports on allocation and diversification levels. With both automation and human oversight, diversification at Shift is a living, actively managed discipline – not something left to chance.