Centralized vs Decentralized Hedge Funds

2022-03-02, 04:21

[TL;DR]

A Hedge fund is an investment pool that uses varied proprietary strategies (i.e global micros, market-neutral) to generate returns with minimum risk.
Hedge Funds take positions, trade equities or bonds, convertible securities, currencies, derivatives and commodities, fixed income products, and many more.
Centralized hedge funds are usually open to high net worth investors, insurance companies and banks, pension funds.
Decentralized hedge funds are open and transparent funds management on the blockchain network.
Read on to find out the major difference between the two types of hedge funds.

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What are Hedge funds?

Hedge funds are investment vehicles, i.e a pool of assets in varied proportions that are managed by fund managers. However, among the capital market's innovations and investment opportunities, one hedge fund, in particular, serves to further reduce credit concentration in the economy while also decentralizing fund managers' unique perspective on the cryptocurrency market.

Centralized vs. decentralized Hedge Funds

Fundamentally, all successful hedge funds are built on the fund manager's perspective of the market. Centralized investment funds cover the risks because the assets managed by the fund are sufficiently diversified. When a hedge fund entices investors to put their hard-earned money in the hands of fund managers based on market possibilities and the manager's expertise, the manager's only objective is to maximize returns while minimizing risk.

The decentralized hedge fund is basically a decentralized cryptocurrency hedge fund, which are investment funds that pool funds from investors into a group of assets, ranging from cryptocurrencies to other decentralized digital assets. These funds are actively managed by experts or insider investors, who charge a fee for the analysis and selection of investment opportunities.

Diversifying and allocating funds can be done through a range of human and automatic procedures, such as limiting to high-value market caps, hand-picking certain assets, and more. These tactics are often used by investors who want to reduce their risk exposure to volatility in the value of a single cryptocurrency on the market. Decentralized Hedge funds solely specialize in cryptocurrency assets, while traditional hedge funds have also increased their exposure to cryptocurrency assets.

Instead of relying on a single manager’s bets; in a decentralized hedge fund:

• Investors are urged to vote so that the fund can average live market bets, evaluate the outcome of the investment theses, and reward investors proportionally based on their votes.
• Decentralized Hedge funds do not hold their members' cryptocurrencies; instead, they just allocate them. Furthermore, there are no human managers or owners; instead, smart contracts are in charge.
• Trading is automated 24/7, i.e Funds are always accessible for withdrawal, and some decentralized funds do not require a minimum deposit beyond the one-time activation fee
• Economic perspectives must be taken into consideration when making decentralized decisions.
• Investors are encouraged to vote to determine investment strategy.

Decentralized Hedge Funds vs Centralized Hedge funds — Detailed explanation

Traditional hedge funds are centralized, and the 2/20 rule is used by the majority. According to this rule, 2% of the hedge fund's profits go to covering costs, while 20% of the gains are commonly expected to go directly to the hedge fund manager's general partner. The lack of a necessity for public reporting is the rationale for such large payouts.

There is also little monitoring in the fund's financial operations because its activities and earnings are completely opaque. Hedge funds are generally not required to reveal theirtheir strategies to the public, if it is profitable, no one checks the books to discover what's going on.

Here is where the Decentralized hedge fund comes in, just like regular hedge funds, a DeFi fund is a pool of resources managed by an individual operating on the blockchain or a smart contract code. Just like the case of centralized Hedge funds, a fund manager uses the investors' capital to build and create investment strategies. But because that strategy is carried out on the blockchain, the process remains entirely transparent, and all the transactions performed become visible to the public, which enables everyone to check where the money is going. Anyone gets to invest in these funds by simply connecting a crypto wallet to the DeFi hedge fund. There are no expensive barriers to investment, which doesn't stand to refrain average crypto investors from joining a DeFi hedge fund and gaining returns from the investments.

Decentralized Hedge funds to invest in, today

Here's a list of decentralized hedge funds that are available in the cryptocurrency market and their present data at the time of this writing.

1. DAO Invest
DAO Invest belongs to the DeFi Ecosystem, which develops community-controlled cryptocurrency projects that enable investors to pool funds by contributing to community-voted liquidity pools.” DAO Invest” price currently sits at $0.01320542 with a 24-hour trading volume of $0.339121. VEST price is down by -16.1% in the last 24 hours. It also has a circulating supply of 0 VEST coins and a total supply of 100 Billion." — Coingecko

Coingecko

2. DFund
Dfund offers decentralized hedge funds and lending, by functioning in the vast Polkadot ecosystem. It also serves as a secondary marketplace for synthetic assets. DFund primarily connects several Decentralized Autonomous Organization (DAO) modules, which operates using Smart contracts,i.e a set of codes that execute automatically when a set of criteria is met."DFund price presently sits at $0.00184839 with a 24-hour trading volume of $11,339. DFND price is down by -3.2% in the last 24 hours. The hedge fund has a circulating supply of 330 Million DFND coins and a total supply of 1 Billion."

Coingecko

3. Decentralized Hedge Funds
DHF (Decentralized Hedge Fund) is a fully autonomous Decentralized Cryptocurrency Hedge Fund, which is fully programmed for financial management and executed by Artificial Intelligence. "Hedge Finance price today is $0.00110225 with a 24-hour trading volume of $246,698. HEDGE price is down by -62.9% in the last 24 hours, with a circulating supply of 0 HEDGE coins and a total supply of 1 Billion."

Coingecko

4. Apollo DAO
Apollo is built for DeFi investors, and it utilizes safe and cost-effective auto compounding mechanisms in maximizing investors returns."Apollo DAO price currently at $0.626175 with a 24-hour trading volume of $1,141APOLLO'sLO price is down by -2.8% in the last 24 hours. It also has a circulating supply of 5 Million APOLLO coins and a total supply of 100 Million."

Coin gecko

5. Kassandra DAO
Kassandra is a decentralized autonomous organization that oversees a collection of tokenized data-driven investment funds. Kassandra is primarily used to tokenize complicated investing techniques in non-custodial assets that do not require investment approval. "Kassandra price today is $1.72 with a 24-hour trading volume of $24,314. KACY price is down by -3.7% in the last 24 hours, with a current circulating supply of 0 KACY coins and a total supply of 10 Million."

Coingecko

Conclusion

The major difference between centralized hedge funds and decentralized hedge funds is the application of blockchain in DeFi Hedge funds. But they are both aggressively managed and leveraged in international and local markets. However, the De hedge fund is a revolutionary technology that shows how blockchain technology is opening the economy to anyone, and with time, it will change the entire economy.

Author: Gate.io Observer:M. Olatunji
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
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