Once again, the asset management area is being shaken up by the cryptocurrency world.
We have all witnessed the embracing of cryptocurrency and digital assets that has taken place this year by some of the world’s most seasoned and experienced hedge funds and wealth management companies in which Bitcoin and Ethereum funds have been added to portfolios, however this is now going a step further.
As decentralized finance (DeFi) becomes increasingly technologically advanced, so does the interest in it by institutional investors and asset managers.
Now, hot on the coat tails of the influx of hedge funds and portfolio giants into the crypto space comes the active asset management sector.
The matching of extremely highly advanced trade execution technology that has dominated the institutional asset management sector for the last twenty years and is constantly being refined, such as smart order routing, live order book data availability and algorithmic high frequency trading is perfect for the equally highly advanced decentralized finance (DeFi) world.
The synergies are now very strong and nowadays the plethora of decentralized applications which function by virtue of aggregating capital into liquidity pools which serve the role of a market maker is an ideal topographic setting for matching DeFi with institutional electronic trading.
Liquidity providers lock funds into a contract and then earn yield generated from the fees or other incentives associated with it.
Additional incentives, such as distribution of governance tokens to LPs and users, are used to attract capital away from competing protocols, keep capital within the system, and to give participants a say and stake in the application itself.
Given this direction, it is therefore important that DeFi exchanges can provide their own versatile native token, such as CoinMetro’s XCM which is now available for participation in staking.
Participation in XCM staking earns all who participate a passive income, and gives a chance to hold the next big step in the world of decentralized finance.
With regard to active wealth management, the technical risks associated with various protocols, and the levels of volatility, investors must be quite savvy to compete in getting the best return but this level of volatility and aligned technological development that outstrips the standard OTC trading world is without question what has got the wealth managers interested.
So, once again, we have more evidence that DeFi is not just for those who wish to make their own way in life and ensure that they have the most efficient method of using blockchain based advantages such as smart contracts and instant international payment settlement, but also it is for the institutional world which sees it as a whole range of new digital products which are very clearly aligned with the asset management space.