To simplify portfolio rebalancing via DeFi, it is essential to ensure adoption

The decentralized finance industry is rapidly growing, and it’s now that portfolio risk management must keep up with the latest innovations.
Rising inflation is a growing concern for key leaders and central banks, creating doubt spirals around the globe. Recent statements by Janet Yellen, United States Treasury Secretary, urging Congress to raise or suspend the U.S. Debt Ceiling, stating that the government would run out of money to pay its debts by October. This sounds more like a nightmare film than anything. However, it is the current front news from global financial publications. According to Yellen, economists and Treasury officials from both sides agree that failure to raise the debt limit will lead to widespread economic disaster. This could potentially cause stock sell-offs, recessions, and historical financial crises. It also creates severe market volatility. Margin calls and liquidation issues are now impacting traditional finance as well as decentralized finance (DeFi). The Evergrande real-estate crisis is a further indication that poor decision making from a variety of markets will have an impact on markets we didn’t think were connected like crypto. Also, understanding of money has deteriorated over the years. Poor policy-making has left more than 31% unbanked in the past. However, more countries are exploring different currencies as decentralized financing becomes more popular. Crypto, which is complex by nature, is now moving into the next iteration. This is due to the rise in infrastructure and tool development that is helping newcomers navigate financial risks and uncertainties. Leaders in this space must help newcomers reduce portfolio risks. Education is key. Market wipeouts of a hundred-billion dollars are not uncommon, with the market cap taking a $2 trillion hit in recent weeks. Recent events, such as the SEC crackdown or El Salvador, have shown that investor confidence and lack thereof can easily be influenced by speculation, announcements, and other happenings. As regulators intensify crypto scrutiny, the SEC had to warn investors about volatility and fraud in cryptocurrencies. Recent events such as the SEC crackdown and El Salvador have demonstrated this. The actions of large players heavily influence price movements of cryptocurrencies, and new investors with less holding power are more likely to be caught unaware due to the complex nature of the DeFi and cryptocurrency market.Related: Institutional investors won’t take Bitcoin mainstream — You willWhile in this phase of being vulnerable to whales’ actions, understanding how to control levels of risk are critical to encouraging mass adoption, especially for new investors with less capital.Cryptocurrencies have brought democratization of wealth access: 24 hours a day, anyone can access financial assets with the click of a button, with assets that earn a higher yield than any fiat asset held by a traditional bank. There are more opportunities for wealth creation because there is no need to have bureaucracies or intermediaries. However, those who can speak crypto languages are able to understand how to be strategic. Ultra-wealthy crypto holders have the means to pay investment funds and brokers who have access to traditional backed investment tools such as providing trading, custody and financing services to ensure their investments are correctly balanced against the market at all times.What is portfolio rebalancing?Portfolio rebalancing is the process of realigning the weightage of a portfolio of assets, involving buying or selling assets periodically to maintain a targeted level of asset allocation and risk. This process can help investors reduce the risk of losing their digital assets and help them to manage the downside. Many investors, especially those under 40, are unaware of how to, nor have time to, pay attention to and manage risk in their portfolios or understand why rebalancing is essential for wealth stability and generation.Rebalancing not only prevents overexposure but helps to instill good trading habits by building customer discipline to stick to a long-term financial plan that allows investors — both young, old, new and experienced — to regularly monitor any potential market movements that could cause losses. Related: Crypto asset diversification vs. putting all your eggs in one basket. Most rebalancing strategies are time-based (i.e. yearly, quarterly, monthly, etc.) However, it is also possible to be reactive — i.e. based on the allowable percentages of assets. This is more expensive. If the original target asset allocation was 50/50 between assets A and B, and asset A performed well it could have increased the portfolio weighting to 70%. This means that an investor might sell some of A to purchase more B to reach the original 50/50 target allocation. The split does not have to be equal among assets. However, rebalancing works best when there is a mix of volatile and nonvolatile holdings. This protects investors from being exposed to unfavorable risks. Traditional finance involves the investor tracking the data through spreadsheets, buying and selling through brokers, or investing in funds where portfolio managers manage it. This is a time-consuming and costly process that should not be restricted to retail investors. There are many technological advancements in TradFi. These applications track, analyze, and automatically rebalance portfolios. They are used by applications like Sigfig, Personal Capital, and Motley Fool Advisor. Automated smart contracts allow people to go to work, sleep, and holiday. This allows them to spread their gains across their assets, while also allowing the portfolio to maintain a net positive gain. As the dollar’s value continues to decline, people need simple tools to diversify their portfolios and protect themselves against financial risk. This is the perfect time to provide decentralized rebalancing tools for the masses. Customers and investors have access to DeFi wealth that isn’t at risk from a centralized bank or government in a recession. It facilitates their financial gains as well as security for the future. Many millennials are using crypto to purchase homes worth millions of dollars. They claim that crypto is the key to homeownership. It’s the average user, newcomers and those who don’t have the privilege to understand the complexities of the space that end up losing the most during times of financial instability. Although we are making progress, there is still much to do. DeFi is still too complex for newcomers, which is slowing the adoption of the space. People shouldn’t be required to take courses in order to learn how to create decentralized trading strategies. They shouldn’t be forced to manually rebalance multiple token portfolios through seemingly endless steps and trade them separately on a DEX. These parameters should be customizable by users to suit their risk profiles. This article does not contain any investment advice or recommendations. Aldrin’s founder and CEO is Hisham Khan. Khan has a decade of experience in building and managing innovative financial and enterprise technology. Hisham has a long career at Bloomberg and has been a project manager for some of the top engineers around the world. He was there that he discovered the incredible potential of cryptocurrencies. Since then, he has left Bloomberg to create comprehensive trading tools through Aldrin. His mission is to make advanced cryptocurrency trading and strategy development available to all.

Relevant news

Leave a Reply