Introduction.

Asset management is a crucial aspect of finance, whether in traditional finance (TradFi) or in the emerging world of decentralized finance (DeFi). In the TradFi space, asset management involves buying, selling, and managing assets such as stocks, bonds, and real estate on behalf of clients. Asset managers have a fiduciary responsibility to maximize the returns of their clients while minimizing risks.

However, the advent of blockchain technology and the rise of cryptocurrencies have disrupted traditional asset management practices. Cryptocurrencies, with their decentralized and transparent nature, offer new opportunities for investors to diversify their portfolios and potentially earn higher returns. In the crypto space, asset management involves buying, selling, and managing digital assets such as Bitcoin, Ethereum, and other cryptocurrencies on behalf of clients.

As the cryptocurrency market continues to mature, the need for professional asset management services in the crypto space is becoming increasingly evident. The high volatility of the market and the complexity of managing digital assets require specialized knowledge and expertise. In this context, the emergence of decentralized finance (DeFi) has brought about new solutions for managing digital assets, including the use of blockchain technology and smart contracts.

In this article, we will explore the potential of asset management in the crypto space and how DeFi is changing the game. there will be a before and an after and you can be sure that the revolution is underway if we look at the advances made in DeFi in recent years as well as the growing number of protocols issued each week.

What about Assets Managing in TradFi?

BlackRock and Vanguard are among the largest traditional finance (TradFi) asset managers, with a combined $16 trillion in assets under management (AUM). These two giants provide clients with a broad array of investment products, including mutual funds, exchange-traded funds (ETFs), and index funds, offering diversified exposure to different asset classes, including bonds, stocks, and real estate.

Economies of scale are one of the primary ways that BlackRock and Vanguard provide their services to clients. Managing vast amounts of assets enables them to negotiate better deals with brokers and other service providers, allowing them to keep costs low and pass on lower fees to clients.

These asset managers also put a strong emphasis on passive investing, with a range of index funds and ETFs that track broad market indices like the S&P 500. These passive investment products are designed to offer low-cost and diversified exposure to the market.

BlackRock and Vanguard also offer active management strategies, employing professional fund managers to actively select and manage investments. These strategies typically come with higher fees but have the potential to generate higher returns.

Clients of these companies are charged management fees calculated as a percentage of AUM, covering the costs of managing the investment portfolio and marketing expenses. They may also face transaction costs, such as commissions or brokerage fees, when buying or selling mutual fund or ETF shares. These costs can vary depending on the investment product and the investment size.

In summary, BlackRock and Vanguard are vast asset managers in TradFi, offering diversified investment products to clients through economies of scale, passive investing, and active management strategies. Clients pay management fees and transaction costs that may vary depending on the investment product and investment size.

Assets management in DeFi.

Disruption or logical evolution?

This question arises as DeFi has brought a paradigm shift in the financial services industry, and asset management is not an exception. DeFi is a new financial system built on blockchain technology and smart contracts, enabling users to transact with each other without intermediaries. The advent of DeFi represents a significant departure from the traditional financial model, which relies on intermediaries such as banks, brokers, and clearinghouses to facilitate transactions and manage assets.

On the one hand, DeFi can be seen as a disruptive force that challenges the existing financial system and threatens the status quo. DeFi has the potential to displace traditional financial intermediaries and democratize access to financial services, providing greater transparency, security, and efficiency in financial transactions. DeFi also enables greater financial inclusivity, providing access to financial services to those who are underserved or excluded by the traditional financial system.

On the other hand, some argue that DeFi represents a logical evolution of the financial system, building on existing technologies and leveraging blockchain and smart contracts to improve efficiency, reduce costs, and enhance security. DeFi can be seen as a natural evolution of the financial system, enabling greater innovation and experimentation in financial products and services, and facilitating the development of new business models and revenue streams.

DeFi has the potential to fundamentally transform the financial industry, it remains to be seen how the traditional financial system will achieve mainstream adoption.

How is it about to take off?

Asset management in DeFi is a rapidly growing field that is poised for significant expansion in the coming years. The core idea behind DeFi asset management is to enable individuals to manage their digital assets in a decentralized manner, without the need for intermediaries like banks or traditional asset managers.

Another way that asset management is taking off in DeFi is through the use of DEXs, AMMs, decentralized lending and borrowing protocols, fixed rates protocols and more. These platforms enable users to earn interest on their digital assets by managing them using technics such as trading, leveraging, hedging, using indexes and so on.

In addition, there are now several DeFi platforms that enable users to stake their assets in order to earn rewards. Staking involves locking up a certain amount of assets in a smart contract for a specified period of time, in exchange for a reward in the form of additional assets.

As we saw with in our last article (link), one of the most innovative tools for creating and managing digital financial assets and smart assets on the EVM blockchain are the ERC-4626 and ERC-4337 token standard.

ERC-4626 is a token standard for the EVM network which is allowing developers to create tokenized vaults. These vaults would enable users to pool their assets and earn yield from multiple assets simultaneously. This would be more efficient and cost-effective than having to execute multiple transactions. The tokenized vaults would be managed by smart contracts, making them decentralized and tamper-proof. Developers can build on top of existing yield products, providing users with more yield options, while ensuring the security of the smart contracts. Tokenized vaults would offer a more streamlined and secure approach to yield farming, providing users with more diversified and innovative yield options. Overall, ERC-4626 is enhancing the efficiency and user-friendliness of the DeFi ecosystem, offering investors better returns and more choices.

ERC 4337 is an important development in addressing the user experience issues associated with Web3. By introducing the concept of account abstraction, it allows wallets to be more programmable and composable, which in turn creates new possibilities for the development of innovative products and services to enhance the usability of Web3. This new standard provides various benefits such as wallet recovery, multi-sign transactions, programmable authentication logic, gasless transactions and sponsored transactions, which can simplify the user experience and make the use of Web3 more accessible to a wider audience. The adoption of ERC 4337 is a significant step towards improving the functionality and accessibility of the Web3 ecosystem.

The growth of asset management in DeFi is mainly attributed to the desire for more control and transparency over digital assets, along with the potential of higher returns compared to traditional asset management. With more people being introduced to the advantages of DeFi and the wide range of products and services offered, it is expected that the space will experience substantial growth in the future.

What types of users are interested in asset management services?

Asset management has primarily two distinct target audiences.

The first we will discuss is the retail target audience. Indeed, whether in traditional finance or in DeFi, managing a portfolio of assets is a daunting task that requires in-depth knowledge in the respective field and constant monitoring to stay as close as possible to market trends and news. This is true in traditional finance, but even more so in DeFi.

Most retail investors will rely on a wealth manager or invest in ETF-type products to avoid having to spend their time rebalancing their positions to maintain the best possible market exposure.

In the case of professional or institutional clients, these entities will often have in-house teams to manage their positions, but we also know that they can delegate this management to managers who will perform the same kind of tasks as for individuals but with dedicated teams that may even be supplemented by AI. (like Aladdin for BlackRock)

In any case, whether retail or professional, the need for active portfolio management is essential when one wants to maximize yield and performance.

Our vision is that DeFi will become the backend of global finance, like what TCP/IP is to the internet. In this world, asset management protocols will play an essential role, connecting infrastructure protocols (like Aave or Morpho) with banks and fintechs, exactly what companies like BlackRock and Vanguard are doing today. However, with intermediaries reduced to their strict minimum allowing the maximized capital efficiency.

In the same way that we hear very little about players like BlackRock as a manager even with its customers or those who sell their products, the simplicity of onboarding for users in DeFi is one of the keys that leads to the success and democratization of these DeFi tools.

Continuously seeking the highest possible yield.

In DeFi and in crypto in general, diversification can be challenging to achieve, and it is common to see many investors focusing on trading individual assets rather than building a diversified portfolio. With one of the most volatile markets globally, investors who fail to diversify their portfolio and expose themselves to high-risk assets can experience significant losses.

It is important to understand that yield rewards the risk, and higher yields come with a higher risk profile. Therefore, investors need to be cautious when delegating their assets to managers and must assess their risk tolerance and investment goals before investing.

Additionally, while DeFi provides numerous opportunities for generating high yields, it is crucial to remember that the space is still relatively new and not yet regulated. Investors must conduct their own research to understand the risks associated with the underlying assets, protocols, and yield farming strategies employed by the managers. Furthermore, investors need to evaluate the security measures put in place by the managers to protect their funds from potential hacks and vulnerabilities.

Therefore, it is important for investors to work with reputable managers and choose diversified investment strategies that can help mitigate risks. Diversification is key to managing risk and achieving long-term investment goals. In DeFi, this can be achieved by investing in a variety of yield farming strategies and protocols with different risk profiles.

In conclusion, while DeFi offers investors significant opportunities to generate higher returns on their investments, it is crucial to remain cautious and understand the risks involved. By working with reputable managers, conducting thorough research, and diversifying their portfolio, investors can navigate the DeFi landscape and achieve their investment goals.

Most cryptocurrency holders are hesitant to expose themselves to DeFi due to the complexity of using protocols, opacity of associated risks, and the need to manage their positions almost in real-time, 24/7 as the market never closes. These unique conditions specific to the crypto ecosystem are barriers that decentralized asset management service providers should overcome to grow.

Decentralized Management is here.

As we are discussing DeFi and, therefore, a secure and decentralized environment, it seems essential to link its main principles to the management of crypto assets. Thus, delegating this management means granting managers access to carry out the necessary actions, but not granting them ownership of their clients' assets. The rhetoric surrounding trustlessness is a non-negotiable principle and a foundation of what is being built seriously in DeFi.

Similarly, the actions that must be taken to ensure the financial success of the positions taken by the managers must also be carried out independently and automated to allow for an appropriate reaction time to market movements and to ensure perfect security of depositors' funds.

The use of decentralized tools and protocols is imperative, ensuring not only the perfect execution of predetermined actions but also an equal treatment of all depositors on the same fund or strategy. Thus, the implementation of keepers such as Chainlink Automation, Gelato, or Keep3r Network, for example, allows for this automated and common management for all within the same strategy.

About cost mutualization.

One of the positive contributions that can be cited in using decentralized finance tools as well as asset management strategies that pool the actions of managers is that it becomes possible to significantly reduce the costs inherent in this management.

Indeed, several advantages can already be listed such as:
For the user:

• A pooling of costs such as harvest or gas which leads to better returns on investment.

• An improvement in the efficiency of depositors' capital.

• A wide choice of managers thanks to on-chain tracking of real performances.

• Total control over funds and investment timing.

For the protocol and “managers”:

• An expected growth of the TVL (total value locked) of funds under management thanks to the multiplication of different strategies and investments.

• A growing remuneration compared to the competitiveness of the yields obtained as well as the simplicity of daily management and use.

Peace of mind is priceless.

The ability to hold one's own funds and not have to rely on a trusted third party when using DeFi is one of the fundamental principles that can be difficult to grasp for non-initiated individuals. However, for those who enjoy the delicious aroma of freedom, it is difficult to go back.

As we have seen, having to manage one's assets and positions almost daily based on the market can lead to a sense of alienation for crypto holders and DeFi users in particular.

Ultimately, the implementation of safeguards, automated systems ensuring fund security, and the multitude of opportunities offered to each investor are factors that, in addition to creating emulation towards an innovative, original, and profitable way of managing part of their capital, allow them to maintain control over their assets and spend less to earn more.

If great powers come with great responsibilities, a high-quality service certified by the best protocols and strategists undoubtedly provides better peace of mind.

Conclusion.

Decentralized Finance (DeFi) is redefining the financial landscape, and asset management is no exception.

With the emergence of blockchain technology and smart contracts, DeFi is enabling the creation of new financial products and services that allow individuals to manage their digital assets in a decentralized manner without the need for intermediaries such as banks or traditional asset managers.

As DeFi continues to mature, it is also changing the game of asset management and the need for specialized knowledge and expertise in managing digital assets is becoming increasingly evident.

The potential for the growth of asset management in DeFi is being driven by the desire for greater control and transparency over digital assets, as well as the potential for higher returns compared to traditional asset management. As more individuals become aware of the benefits of DeFi and the range of products and services available, it is likely that we will see significant growth in the space in the coming years.

In conclusion, the emergence of decentralized finance (DeFi) is changing the game of asset management, providing a paradigm shift in the financial services industry. The traditional model that relies on intermediaries such as banks, brokers, and clearinghouses to facilitate transactions and manage assets is being disrupted by DeFi's blockchain technology and smart contracts, which enable users to transact with each other without intermediaries.

Asset management in DeFi is rapidly growing and is poised for significant expansion in the coming years. DeFi's potential to democratize access to financial services, provide greater transparency, security, and efficiency in financial transactions, and enable greater financial inclusivity is driving the demand for specialized knowledge and expertise in managing digital assets.

The potential for growth is being driven by the desire for greater control and transparency over digital assets, as well as the potential for higher returns compared to traditional asset management. With the use of decentralized tools and protocols, cost mutualization, and the ability to hold one's own funds, DeFi offers investors better returns and more choices.

As more individuals become aware of the benefits of DeFi, it is likely that we will see significant growth in the space in the coming years. The future of asset management in DeFi is bright, and it is only a matter of time before it becomes mainstream.

Murphy Labs Research — Anything that can happen, will happen.

• Website: https://murphylabs.io/

• Twitter: https://twitter.com/murphy_labs

• Lenster: https://lenster.xyz/u/murphy_labs