Historically, the financial sector has been very slow in terms of innovation.
In particular, asset management has been relatively static since the advent of banks and later funds with their custodians, trustees, auditors and compliance departments.
By its very nature, asset management was difficult for intermediaries, making it a slow and inefficient business.
As an investor, you must submit a significant amount of documentation, meet certain requirements (such as being an accredited investor) and pay significant fees (2-3% per year) just to have a third of your money managed. The investment process took weeks.
However, in recent years, the web2 revolution and the emergence of fintech apps such as Robinhood, Revolut and eToro have made it possible for novice investors to participate in the money markets right from their smartphones.
However, on the backend, the funds were still controlled by a designated person (such as a bank) and users mostly exchanged numbers on the screen.
Ease of access has been simplified, but users often had to go through lengthy KYC procedures and still pay high fees to brokers. In addition, if users did not provide updated information on time or for any other reason, they could be blocked.
With the advent of blockchain technology, the need for financial intermediaries has been greatly reduced. All third parties involved in financial management and administration have been replaced by new technology.
– The custodian has been replaced by a smart contract – a program that stores assets that can only be accessed at the owner’s pre-programmed address.
– The administrator has been replaced by a smart contract – a set of rules that determine how assets are managed.
– The auditor has been replaced by blockchain technology itself, which inherently makes all transactions transparent and publicly verifiable.
With the removal of all these intermediaries from the scheme, financial management becomes much cheaper and more transparent.
Traditional fund managers have to pay 1-1.5% per annum of managed capital to fund administrators for their work. With blockchain, this number is reduced to ±0% or simply pays for network gas.
For a fraction of the cost of setting up a TradFi hedge fund, you can build your web3 treasury with multi-signature permissions and manage assets consistently.
You can also create your own smart contracts that execute transactions based on complex rules such as bots and algorithmic trading.
With the development of DeFi insurance products such as InsureAce, online asset management will become more secure and reliable.
You can go so far as to split every strategy and smart contract you execute into your money level to limit risk.
As more and more people realize the benefits of decentralized finance, blockchain will truly benefit the next generation of asset managers.
Written with the assistance of Max Yampolsky, consultant.