Like Stablecoin, on-chain asset management has been one of the first blockchain scenarios to land. The DAO’s organizational structure naturally removes organizational barriers to decentralized asset management. Enzyme, a pioneer of multi-chain asset management protocols, was created in 2016. More importantly, it can use tokens to incentivise asset issuers and liquidity participants to tap into more decentralized financial scenarios. From flatter investment decision-making systems, to incentives to participate in product beta versions, to the formation of vast armies of capital in the upcoming metaverse. These new tools will be a force to be reckoned with once the asset management protocol has achieved the integration of tokens with the community.

Enzyme allows users to make speculative bets using liquid assets. With the development of decentralized asset management protocols and the emergence of new ways to interact with the “X-to-earn” social paradigm beyond DeFi boundaries, we can expect to see an influx of user demand for such tokens. New players are entering the new management game.

Decentralized asset management: an attempt to return to classical equilibrium Due to the nature of centralization and barriers, traditional asset management is a high-cost and high-friction industry. The core of decentralized asset management is to optimize the traditional asset management process.

Decentralized asset management utilizing blockchain and smart contract technology has the following advantages:

Effectively reducing start-up costs. This is arguably the most important and immediate improvement. In traditional finance, creating a fund requires high compliance, registration and notarization fees. But the cost of starting a fund on a blockchain is low.

Greatly shorten the startup time. The traditional fund creation process can take months. The decentralized alternative only takes a few minutes.

Anyone can be a fund manager. Blockchains and smart contracts allow anyone with a computer to build their own investment vehicles.

Anyone can be a fund investor. Top fund investment opportunities are limited to qualified investors with net assets of several million dollars, while decentralized asset management does not limit the size of funds.

Strictly enforced terms of authorization. Traditional fund rules and licensing agreements are often enforced subjectively by fund managers and can still be broken at their discretion. Blockchain-based funds can make rules strictly algorithmic, leaving fund managers with no choice but to follow predefined rules.

Based on the principle of untrusteeship/no trust. In blockchain-based funds, fund managers do not have the right to trust or withdraw investors’ money, but can only use it to execute certain investments.

More liquidity. Most traditional fund redemptions are usually quarterly. Blockchain-based funds can greatly increase investor liquidity, and protocols can allow instant redemption depending on the actual state of the fund’s position on the chain.

Transparency. Foundations in the traditional asset management world are often closed and relatively opaque because of their reliance on real-life contracts, external auditors and non-real-time reporting. A fund built on blockchain is completely transparent, with all changes in its portfolio updated in real time.

Composability. Decentralized finance has evolved into a set of interconnected and modular monetary Legos. This allows decentralized asset management to easily plug into other DeFi services for trading, extending leverage, insurance, swaps and other product capabilities. That gives investors more choice.

The appeal of active on-chain money management Asset management in DeFi can be divided into the following three categories:

Active on-chain fund management (active management)

Index products and basket currencies (passively managed)

Structured products and vault based products

This paper deals only with the field of active on-chain fund management. Historically, actively managed funds have generally outperformed passive basket indices, or DPI indices. Actively managed funds tend to do better in downturns. Of course, passive asset management protocols usually have advantages in attracting capital, but in maintaining the efficiency of capital operation, they often encounter the problem of liquidity disloyalty, which can only be overcome by the unsustainable way of high-yield mining.

Motivating teams and users to develop high-yield Alpha strategies is an issue that needs to be considered in every asset management agreement, regardless of type. But with passive asset management protocols, the big returns are often available only to a few. This can lead to a long time gap between protocol product development and capital strategy execution. Active funds, by contrast, can change strategies and compete for capital more quickly because of the large number of managers and often only need to capture high-return speculative assets and trade in secondary markets.

Of course, the discretion of asset management protocols is also a double-edged sword. High yields may be a moat for passive management protocols, but robustness and diversification are preferred for active management protocols. Ongoing policy maintenance and optimization is a good starting point for socializing. Recent large-scale DeFi liquidations have proven that agreements that are divorced from communities and violate the principle of decentralization cannot ensure capital efficiency.

A difficult attempt to socialize asset management Cater to the personalized needs of crypto users On-chain asset management ensures that investors have no trust in the custody of capital. Transparent ledgers reduce the cost burden of complex accounting and auditing. At the same time, DeFi’s permitless access provides users with open access rights. This means that the cost of launching a hedge fund in the blockchain world is limited to a small amount of Gas fees.

However, the TVL of decentralized asset management protocols is small. Why hasn’t something with such high product fit expanded rapidly so far? The main thing is that the space is still getting more social traction. While this segment of the market may be immature relative to other DeFi products, its acceptance so far has been very encouraging.

Cryptographic native protocols are building a toolkit for decentralized money management in a variety of ways. We may see crypto-native asset management protocols become popular before more mainstream traditional institutions take action. Social tokens allow users to make interesting trades on speculative assets. These on-chain assets are traded based on individual needs in a decentralized asset management approach.

Web3.0 and crypto native tokens may not simply be a one-to-one copy of TradFi onto the blockchain. While cost reduction is important, it is mechanism design and the development of unique products based on smart contracts that are likely to attract users. Unfortunately, innovative decentralized asset management infrastructures often have little to offer in terms of innovative mechanisms.

Why hasn’t there been a pandemic? The asset management habits of crypto users are often fast-paced, which conflicts with the long-cycle nature of asset management. A step-by-step strategy is clearly unacceptable to users in an area characterized by the highest volatility. So highly leveraged crypto derivatives tend to be more popular. How the asset management protocol provides these policies and scenarios to users with low risk is very important. Note that I said low-risk offering, not low-risk creating profit.

For actively managed funds, it takes years of continuous management to have a chance of producing long-term average returns. For fund managers, the process is also relatively long. The cost of trust is higher than the copy trading function of a centralized exchange. So how asset management protocols ensure that users build trust in the face of these long turnaround periods is also important. So far, vault design and community fund rewards are viable mechanisms.

In addition, DeFi users tend to prefer the feeling of being in control of their money, and some good fund managers may not necessarily like full exposure to the chain portfolio. This prevents the agreement from attracting higher-quality fund managers and a larger number of DeFi users. How to bridge the boundaries between privacy and initiative is important. Instant redemption, users’ rights to portfolio assets, and the empowerment of managers’ equity are also important. From this point of view, investment kols with their own community attributes tend to be the priority of decentralized asset management protocols, while social tokens and NFT have obvious advantages in increasing tool availability and user asset flow.

Enzyme: Eliminate capital waste and welcome social return Integrate protocols and portfolio assets to improve capital efficiency Enzyme is a modification of Melon Protocol. They released version V4 this year, which has a lot of innovation beyond basic features like decentralized lending, AMM pools, and agricultural capabilities. Fund managers have access to a large number of functions outside the protocol. This protocol integrates Polygon, Uniswap V3, Opyn, Compound, Aave, and other protocols. At the same time, Gas Relayer’s new features allow asset managers to eliminate the high Ethereum Gas fee burden and redefine the cost of the entire vault. To fully understand how this works, as well as its implications and best practices, we will soon be posting a blog covering this.

V4 allows users to customize the token/ticker symbol and customize around the user’s brand identity. Users can also transfer shares to new investors without redemption. This creates a secondary market for the user’s Treasury stock, which gives it the opportunity to trade. Users can invest in more than 200 assets here. The platform also enables organizations to run their own investment funds using Gnosis multi-signature wallets.

Enzyme solves the problem of capital inefficiencies by integrating deployment with multiple protocols. Increase the availability of the agreement by borrowing and escrow assets. So Enzyme is definitely on the move when it comes to making broader gains. The allocation and use of idle assets to obtain immediate income increases the source of liquidity and income options. Better use of idle assets and LP tokens is an important reason why Enzyme is ahead.

The key to winning: Personalized social investing trends Enzyme’s own Treasury creates a personalized vault, while users can easily copy on-chain policies. These designs greatly enhance users’ social security and freedom. Enzyme also improves security and depositor protection through a 7-day review period. V4 introduced a protocol fee for this protocol. The fee is a tax on the amount of assets under management in each vault. This is calculated continuously with respect to the annualized target percentage and results in the automatic casting of a certain number of additional shares for each vault and allocation to the agreement itself. The agreement uses a repo mechanism to force fund managers to demand MLN tokens. In addition, the burning of the MLN used for buybacks creates deflationary pressures on tokens.

In traditional finance, investing in hedge funds can be difficult for the average person. Launching hedge funds could be harder. Enzyme simplified and innovated the fund launch process, and the openness of the network they built in addition to improving transparency, democratized access for all investors. After years of development, Enzyme’s TVL hovers around $30 million. We think Enzyme should pursue more social attempts to monetize smart elitist investment management. For investors, Enzyme lowers barriers to entry and improves transparency. As long as the Enzyme protocol continues to integrate and expand the scope of assets and focus on optimizing the long-term direction of composable financial instruments, the investability of assets across the chain will continue to increase. Even during bear markets, asset management protocols should consider a profit strategy on the downside. Fund managers can hold stablecoin assets and avoid the downward trend in profits. On this basis, how to create more investment options for users in a falling market is the problem to consider. For the two core stakeholders, it is only a matter of time before AUM rises in the future, as long as their enthusiasm can be stimulated.