Demystifying Limitations Of Traditional Asset Management
Blockchain technology has revolutionized several industries across the world, but it appears that the financial sector is currently experiencing the revolution. The traditional financial system will undoubtedly be disrupted by decentralized finance (DeFi) that involves asset management. This is our first article of the two-part articles that will introduce the concept of, decentralized asset management, which aims to bring transition in the financial industry from a centralized to a decentralized state by utilizing blockchain technology. Investors may use blockchain technology to invest in funds and fund managers may return them profits.
Elon Musk has rightly put it ~ “Paper money is going away”
Decentralized asset management has quickly become fashionable in the new blockchain world, and a growing number of individuals are utilizing the possibilities of decentralized hedge funds. But, in general, what exactly is a decentralized fund, and how is it different from traditional fund management in the financial industry? We’ll go through these and other questions in this post.
So you may be thinking “If we need good returns on my money, shouldn’t we invest in traditional funds any longer?”
The answer is a clear NO — here’s the reason why.
Problems with Traditional Asset Management
Asset management companies (AMC) around the world manage savings of over $70 trillion.
A few years ago, blockchain technology was thought to be a solution to some of these problems, however, so far it has remained out of reach for asset management companies due to limitations in speed and costs.
A decentralized asset network aims to solve all these problems and more! It’s time we talk about how it will change the world of capital investment.
How a typical AMC works?
The firm holds assets on behalf of clients and charges fees based on a percentage of total assets under management. Typically, if an institution wants to start investing their client’s money they must hold several million dollars in physical assets such as stocks or bonds — obviously not an option for most investors.
It also implies that traditional fund managers have to pay hefty intermediaries such as administrators and auditors, reducing investor profits.
In addition, settling asset transfers can take several days and require a lot of manual work which increases the transactional costs. With assets being transferred on paper, there is a high possibility for human error — exposure to fraud!
The limitations of traditional asset management lead to high minimum investment amounts (minimum orders), high fees (due to intermediaries), slow settlement times (days), and exposure to third-party risk due to manual processing.
Now you understand that:
- You don’t know what you’re investing in
- Fees are high and hidden
- The asset management company charges an annual fee even if the fund loses money
- There’s no transparency into how your investment is being allocated or invested
- Asset management companies are not required to disclose potential conflicts of interest, which may lead to higher fees for investors
- The asset management company doesn’t have a fiduciary duty to its clients, which means they can make investments that benefit them more than their clients
In a nutshell: The current centralized model of asset management is too expensive and slow.
What’s the solution?: Decentralized asset management will be cheaper, faster, and more transparent than traditional investment funds.
There are many questions that investors ask:
- Do you think investing in decentralized assets is worth the risk?
- What are the important things to be considered before investing in decentralized assets?
- Who should be involved in decentralized asset management?
- Why invest in decentralized assets over traditional investments like mutual funds, stocks, bonds, etc.?
We’ll answer them.
A decentralized asset network would enable the creation of autonomous funds with lower overhead costs, settlement times measured in minutes rather than days, and third-party risk mitigated.
Crypto-funds are a new way to invest using blockchain technology. They’re cheaper because they don’t have to pay for expensive offices or compliance overheads.
Because there’s no middleman you get your money back immediately after each trade instead of waiting months for an annual report. And finally, unlike the traditional route, they offer instant transactions with negligible fees so you can get your money out whenever you want without having to wait hours or days for confirmations on the blockchain network.
If you’re looking for a new way to invest, then decentralized asset networks may be the solution. These funds are cheaper and faster than traditional investments because they don’t have expensive offices or high compliance costs. You can get your money back right away instead of waiting months for an annual report. And finally, unlike with most other investments, transactions cost almost nothing so you’ll never pay anything more than what it takes to trade online! Interested in investing?
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