DeFi Series: Understanding Asset Management
The DeFi ecosystem is comprises a variety of blockchain-based financial service applications. We have already introduced you to decentralised exchanges and infrastructure and lending projects.
Another class of service offered by DeFi is asset management. Investors in the traditional environment have often taken their positions for granted as they can afford the risks and fees involved, and live in locations with a reliable financial market that allows investing. However, within decentralised asset management, investment opportunities will be extended to a wider circle of users for whom the traditional finance model proved prohibitive or limiting.
Under the current or traditional model, specialised institutions and financial advisors tailor an investment portfolio to individual characteristics such as risk profile, income and goals. This process is controlled by asset management companies, and investors have considerably limited access to their own funds, while fees must be paid to the intermediary actors. In general, investors have little independence and autonomy over their own assets.
DeFi asset management has come to change that
Asset management services under the DeFi umbrella aim to make investing easier, cheaper and more accessible. No need for managers. Under DeFi, asset management products are non-custodial, meaning there is no need for users to share their private keys or transfer funds. These services are also automated, so rebalances, collateralisation and liquidations take place smoothly and quickly.
Because DeFi asset management has decentralised technology at its core, it boasts increased transparency. In traditional finance, transparency is a murky aspect: settlements may take days and companies usually release their reports once every quarter, leaving shareholders in limbo when it comes to information about their assets. Blockchain technology promises to make information accessible at any time.
Another exciting aspect of DeFi asset management services is the composability feature, meaning that investors can enjoy hyper-customisation of their portfolio, with more room for personalisation around liquidity, income and growth.
The most important part is that all these benefits will be accessible globally; anyone will be able to manage their investment regardless of location.
DeFi asset management projects
Ampleforth: a digital asset protocol built on Ethereum blockchain for smart commodity money with elastic supply, which means that the AMPL protocol automatically adjusts supply in response to demand. This is an innovative approach as it helps to stabilise the price medium of exchange over long time frames by offsetting changes and balancing demand and supply.
DAI: a decentralised stablecoin soft-pegged to the US dollar. Over 400 apps and services have integrated Dai, including wallets, DeFi platforms, games and more. DAI uses margin trading to respond to changing market conditions and preserve its value against the major world currencies. DAI functions as a stable Ethereum token used to pay for goods and services, and it can be easily transferred between Ethereum wallets.
Augmint: a smart contract platform for creating tokens that represent fully-collateralised assets, primarily stablecoins backed by fiat currencies to create a one-to-one exchange rate, creating a ‘digital pair’ between tokens and fiat. The primary foundation of stability is the continuous supply of Augmint tokens via loan originations and a corresponding demand for paying back loans on maturity.
Investors from traditional finance may consider exploring options in the crypto universe. Watch our recent interview with Jeff Hancock, CEO of Coinpass, the award-winning UK-based cryptocurrency exchange platform providing a a seamless and user-friendly experience in investing and trading cryptocurrencies. "Cryptocurrencies don’t have to be so cryptic,” says Jeff.
DeFi is an evolving concept. Let us know your questions about the topic. Contact us via social media or at email@example.com
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