The portfolio rebalancing through DeFi must be simplified to see adoption

Central banks and key leaders are increasingly issuing further alarms rise Inflation has caused a spiral of suspicion around the world.Just recently, U.S. Treasury Secretary Janet Yellen Call Ask Congress to raise or suspend the debt ceiling of the United States, and said the government will run out of money to pay its bills by October.

It sounds more like a future horror movie, just the headlines of current global financial publications. Yellen said that the overwhelming consensus of economists and Treasury officials on both sides is that failure to raise the debt ceiling will lead to widespread economic disaster, “may trigger historical financial crises, stock sell-offs and recessions, and cause severe market volatility. “

The value of the U.S. dollar will continue to decline in the future, and individuals will need simple rather than complex tools more than ever to protect themselves from financial risks and diversify their investment portfolios.

Risk events are also becoming more and more common in global finance. Margin calls and liquidation issues are now affecting traditional finance and decentralized finance (DeFi) as they become more and more interconnected.The ongoing Evergrande real estate crisis further proves that decision-making errors from various markets will Influence We think there are no connected markets, such as encryption.

With the passage of time, people’s general confidence in global finance has declined, and their understanding of currency operations has also become worse.Historically, bad actions by policymakers have led to remain More than 31% of the world’s adult population does not have a bank account.

However, more and more countries are beginning to explore different currencies because Decentralized finance Be more widely adopted. The inherently complex cryptocurrency has finally entered the next iteration, seeing the rise of tools and infrastructure development helping newcomers to navigate the risks and uncertainties of the emerging but nascent financial movement. Leaders in this field have a responsibility to help newcomers reduce their portfolio risk.

related: Mass adoption of blockchain technology is possible, education is the key

Financial democratization involves lowering the barriers to entry for risk management

Unfortunately, cryptocurrencies are inherently unstable.It’s not uncommon for a market value of 100 billion yuan to fall sharply. Recently suffered a 2 trillion dollar blow. Speculations, announcements and other events can easily affect investor confidence or lack of confidence, such as Recent SEC crackdowns with El Salvador in the past few weeks. The SEC was forced to tell investors Watch out for volatility and fraud Regulators strengthened their scrutiny of cryptocurrencies.

Even Bitcoin (Bitcoin), although it is relatively mature as a cryptocurrency, it is still subject to Celebrity tweets like Elon Musk, Its actions with Tesla and tweets pushed prices down.

The market is relatively new to mainstream adoption, and cryptocurrency assets tend to be concentrated in the hands of a large number of whales. The behavior of large participants seriously affects the price trend of cryptocurrencies. Due to the complexity of DeFi and the cryptocurrency market, new investors with low holding capacity are more likely to be ignored.

related: Institutional investors will not take Bitcoin as the mainstream – you will

Although at this stage susceptible to whale action, understanding how to control the level of risk is essential to encourage mass adoption, especially for new investors with less capital.

Cryptocurrency has brought about the democratization of wealth acquisition: 24 hours a day, anyone can acquire financial assets with the click of a button, and these assets have a higher rate of return than any legal assets held by traditional banks. The removal of bureaucracies and intermediaries provides more opportunities for wealth creation and provides understandable assets and tools.

However, at present, encryption only reflects the gap between the rich and the poor in traditional finance, because those who are proficient in the language of encryption understand how to make strategic sense. Super wealthy cryptocurrency holders have the ability to pay the fees of investment funds and brokers. They can use traditional support investment tools such as providing trading, custody and financing services to ensure that their investments are always in the right balance with the market.

What is portfolio rebalancing?

Portfolio rebalancing is a process readjust The weight of the asset portfolio includes the regular buying and selling of assets to maintain the target level of asset allocation and risk. It can help investors manage downside risks while still participating in most upside risks.

This process is crucial in times of financial instability and can help individuals reduce the risk of loss and devaluation of their digital assets. Many investors, especially those under the age of 40, do not know how and have no time to focus on and manage the risks in their investment portfolios, nor do they understand why rebalancing is essential to wealth stability and wealth growth.

Rebalancing not only prevents overinvestment, but also helps to inculcate good trading habits by establishing customer discipline to adhere to long-term financial plans, allowing investors (whether young, old, new, and experienced) to monitor regularly Any potential market movements that may cause losses.

related: Diversification of crypto assets and a basket of eggs

Most rebalancing strategies are based on time periods (ie, yearly, quarterly, monthly, etc.), but they can also be reactionary—that is, based on the allowable asset composition percentage, which is more costly. For example, if the original target asset allocation between assets A and B is 50/50, and asset A performs well, you can increase the weight of the portfolio to 70%.

This means that investors may sell part of A to buy more of B to return to the original target allocation of 50/50.Although there is no need to distribute evenly among assets, it is most effective to rebalance through a good combination of volatile and non-volatile assets in the portfolio, Because it can protect investors from excessive exposure to bad risks.

In traditional finance, rebalancing is either done manually by investors tracking through electronic forms and buying and selling through exchanges/brokers, or investing in funds handled by portfolio managers. For retail investors, this process is inconvenient and over budget, and should not be limited to those who have the time and money to afford it. Through the use of applications that help track, analyze, and automatically rebalance investment portfolios, TradFi’s technology must have new advancements, and these applications are being used by applications such as Sigfig, Personal Capital, or Motley Fool Advisor.

Rebalancing in DeFi may be more beneficial to investors because the process can be automated and does not require you to monitor your investment portfolio and constantly cross-check the value of your assets against the stock market. People can go to work, sleep, and vacation because automated smart contracts distribute their earnings to their assets while allowing the portfolio to maintain a net positive return.

Expecting your agent to do this for you when they start working from 9 to 5 is now a thing of the past.

We have the opportunity to bring better rebalancing tools to the public through DeFi

As the value of the U.S. dollar continues to decline, individuals need simple rather than complex tools more than ever to protect themselves from financial risks and diversify their investment portfolios. Now is an excellent opportunity to provide the public with decentralized rebalancing tools, so that customers and investors can gain democratized wealth in DeFi, free from the mercy of the central bank or government, struggle in economic recession, and promote their Financial gains and safety for the future.

Decentralized finance has huge wealth potential. From millennials using cryptocurrency to buy nearly one million dollars in homes, claiming that cryptocurrency is the secret to owning a home as their confidence in traditional savings declines, a financial world without bureaucracy provides anyone with the Internet with increased wealth or The opportunity to help accelerate financial inclusion, especially for those without a bank account.

related: The adoption of stablecoins and the future of financial inclusion

However, it is usually experts, coders, trading experts and professionals who have survived the volatility of the aftermarket. In these periods of financial instability, ordinary users, newcomers, and those who do not have the privilege to understand the deep complexity of this space ultimately lose the most money.

Since the first Bitcoin was born 12 years ago, you would think that we will simplify the user experience of blockchain-based finance. We are almost there, but we still have some time to go. For novices, DeFi is still too complicated, which is slowing down adoption in this area. One should not take courses to learn how to develop a decentralized trading strategy, or be forced to manually rebalance a portfolio of multiple tokens through seemingly endless steps, and trade them separately on a decentralized exchange or DEX.

Users need to be able to decide how to rebalance their portfolio with a few clicks. Ideally, these parameters can be freely customized by users to suit their risk profile. The DeFi industry is growing rapidly, and now is the time for portfolio risk management to keep up.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Hisan Khan He is the founder and CEO of Aldrin. Khan has a decade-long background in managing and building powerful and innovative financial and corporate technologies. Hisham has a rich career at Bloomberg and has served as a project manager for some of the world’s top engineers. It was here that he discovered the transformative impact of cryptocurrency, after which he left Bloomberg and established a comprehensive trading tool through Aldrin. Aiming to become a trader’s all-inclusive digital trading partner, his mission is to enable everyone to use advanced cryptocurrency trading and strategy development.