The portfolio rebalancing by DeFi needs to be simplified to see an introduction

Central banks and political leaders are increasingly sounding the alarm about rising inflation, which is sparking a spiral of mistrust around the world. Recently, US Treasury Secretary Janet Yellen urged Congress to raise or suspend the US debt ceiling, claiming that the government would run out of money to pay the bills by October.

What seems like a futuristic thriller is currently only the top news from global financial publications. Yellen said there was high consensus among economists and tax officials on both sides that failing to raise the debt ceiling would lead to widespread economic disaster that “could potentially trigger financial crises.” . ”

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

Risk events are also becoming more common in the global financial sector, with margin calls and liquidation problems now affecting both traditional and decentralized finance (DeFi) as they are increasingly interconnected. The ongoing real estate crisis in Evergrande is further evidence that poor decision-making in a wide variety of markets will impact markets that we thought were unrelated, such as cryptocurrencies.

General confidence in the global financial world has waned, and understanding of how currencies work has deteriorated over time. Historically, more than 31% of the world’s adult population have left no bank account through the actions of poor policy makers.

However, many countries are starting to explore different currencies as decentralized funding becomes wider and wider. Cryptocurrencies, which are inherently complex, are finally moving into the next iteration as they see a surge in tool development and infrastructure that help new entrants to the risk and uncertainty of the growing but nascent financial movement. It is up to the leaders in the field to help new entrants reduce risk in their portfolios.

Related: The mass adoption of blockchain technology and education is key

The democratization of finance includes the dismantling of entry barriers for risk management

Unfortunately, cryptocurrencies are inherently volatile. A market write-off of hundreds of billions of dollars is still nothing out of the ordinary, with market cap hitting $ 2 trillion recently. Speculation, announcements, and other developments can easily affect investor confidence or lack of confidence, as evidenced by the recent events of the SEC and El Salvador raids last week. The SEC was forced to urge investors to beware of cryptocurrency volatility and fraud as regulators step up oversight of cryptocurrencies.

Even Bitcoin (BTC), although relatively well established as a cryptocurrency, is still influenced by famous tweets like Elon Musk, whose actions on Tesla and tweets drove the price down.

The market is relatively new to mainstream adoption and crypto assets tend to be centered around large numbers of whales. The actions of the major players greatly affect the price movements of cryptocurrencies, and due to the complex nature of the DeFi and crypto markets, new investors with fewer holdings are more likely to be discovered.

Related: Institutional investors are not going to mainstream Bitcoin – you will

Although in a time of vulnerability to whale action, understanding how to control risk is important to encourage mass adoption, especially for new investors with little more capital.

Cryptocurrencies have democratized access to assets: anyone can access financial assets 24 hours a day at the push of a button, with higher returns than any other fiat asset held by traditional banks. The dismantling of bureaucracies and intermediaries has created greater wealth creation opportunities and offers understandable assets and tools.

For now, however, cryptocurrencies simply reflect the rich and poor divide in traditional finance, as those who are fluent in the languages ​​of the cryptocurrency know how to be strategic. Extremely wealthy crypto holders have the means to pay for mutual funds and brokers have access to traditionally supported investment vehicles such as offering trading services, custody and funding to ensure their investments are always in balance with the market.

What is portfolio rebalancing?

Portfolio rebalancing is the process of rebalancing an asset portfolio that involves buying or selling assets on a regular basis to maintain a targeted risk and asset allocation. It can help investors manage downside risk while staying involved in most uptrends.

This process is important in times of financial uncertainty to help individuals minimize the risk of losing and devaluing their digital assets. Many investors, especially those under 40, neither know how nor do they have the time to identify and manage the risk in their portfolios or to understand why rebalancing is important for stability and wealth development.

Not only does rebalancing prevent over-exposure, it also helps develop good trading habits by building client discipline to adhere to a long-term financial plan that allows investors – young, old, new, or experienced – to to regularly pay attention to potential market movements, which can lead to losses.

Related: Diversify crypto assets against all the eggs in one basket

Most rebalancing strategies are time based (i.e. annual, quarterly, monthly, etc.) but can also be reactionary – i.e. based on an allowable percentage of assets, cost of capital more. For example, if an initial target asset allocation is 50/50 between Assets A and B and Asset A does well, this could increase the portfolio weight to 70%.

This means that an investor can sell some A’s to buy more B in order to return to the original target allocation of 50/50. While it doesn’t have to be evenly distributed across all assets, rebalancing is most effective with a good mix of volatile and non-volatile holdings in the portfolio., because it protects investors from undue exposure to unwanted risks.

In traditional finance, the rebalancing is done manually by the investor tracking through spreadsheets and buying / selling through exchanges / brokers or investing in funds managed by portfolio managers. This process is inconvenient and budget-friendly for retail investors and should not be limited to those who have the time and money to purchase it. There are certainly new technological advances in TradFi through the use of apps that help track, analyze and automatically rebalance the portfolio used by apps like Sigfig, Personal Capital or Motley Fool Advisor.

Rebalancing in DeFi can be more beneficial for investors as the process can be automated and you don’t have to constantly monitor your portfolio and match your asset with the market. People can go to work, bed, or vacation as smart contracts automatically spread their returns across all of their assets while allowing portfolios to hold positive net returns.

Expecting your middleman to do this for you when he starts work between nine and five is a thing of the past.

We have the opportunity to provide the masses with better rebalancing tools through DeFi better

As the value of our dollar continues to decline, more than ever, individuals need simple rather than complex tools to protect themselves from financial risk and to diversify their portfolios. Now is the perfect opportunity to bring decentralized rebalancing tools to the masses by giving clients and investors access to democratized wealth in DeFi without relying on centralized banks or governments to contend with the recession and it enables them to achieve profitability and financial security for the future.

Decentralized finances have great wealth potential. From millennials who use crypto to buy nearly million dollars’ worth of homes, claiming that crypto is the home secret as reliance on traditional savings wanes, the bureaucratic free world of finance offers anyone who has the internet , the opportunity to increase one’s wealth or accelerate financial inclusion, especially for non-banks.

Related: The arrival of stablecoins and the future of financial inclusion

Usually, however, it is the professionals, programmers, trading professionals, and professionals who survive market fluctuations. It is the casual users, the newcomers, and the unprivileged who understand the deep complexities of this space who will ultimately lose the most money in this time of financial uncertainty.

Twelve years since the first bitcoin was created, you’d think we’re simplifying the user experience …

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