Crypto is revolutionizing asset management by democratizing advice and transforming investment strategies, making assets globally accessible, fractionalized, composable, and tradable 24/7.
The ‘Indexification’ of Active Strategies: How Crypto is Revolutionizing Asset Management
Crypto’s influence is expanding from individual assets to the very structure of asset management. According to Miguel Kudry, co-founder and CEO at L1 Advisors, on-chain rails can lower barriers to entry and radically scale operations for financial advisors and wealth managers.
Cryptocurrencies are digital or virtual currencies that use cryptography for security.
They were first introduced in 2009 with the launch of 'Bitcoin' , which remains the most widely used cryptocurrency today.
Since then, over 5,000 alternative cryptocurrencies have emerged, each with its own unique features and uses.
Cryptocurrencies operate independently of central banks and governments, allowing for peer-to-peer transactions without intermediaries.
Democratization of Advice and the Future of Investment Strategies
Just as “Shopify enabled anyone to launch a retail business online”, crypto is enabling a new generation of investment professionals to start and scale advisory businesses without the legacy layers of TradFi infrastructure. This democratization of advice foreshadows broader changes in asset management. When you zoom out beyond the advisor and beyond the assets, you start to see something else: a transformation in the investment strategies themselves, as well as in the machinery behind them.
Tokenization: The Key to Unlocking Asset Classes
Beyond advice, crypto and tokenization are poised to re-engineer entire asset classes by making assets globally accessible, fractionalized, composable, and tradable 24/7. Consider stablecoins, which facilitated $27.6 trillion in on-chain transfers in 2024, surpassing the combined volume of Visa and Mastercard. The efficiency is clear: transactions settle instantly worldwide, with far lower friction and downtime.
A stablecoin is a type of cryptocurrency that maintains a fixed value relative to a fiat currency, such as the US dollar.
It aims to reduce price volatility by pegging its value to an external reference asset.
Stablecoins are often used for everyday transactions and can serve as a hedge against market fluctuations.
They typically have low fees compared to traditional cryptocurrencies and provide liquidity in decentralized finance (DeFi) applications.
Efficiency and Transparency
Tokenization is making markets always-open and hyper-efficient, unlocking assets for a global investor base. A Boston Consulting Group study estimates that fund tokenization could add around 17 basis points of annual return (or roughly $100 billion per year globally) by eliminating operational inefficiencies. Tokenization also brings greater asset transparency. On-chain reserves and transactions are often auditable in real-time.
The Black Box of Hedge Funds
Hedge funds today are large, exclusive, and opaque. They employ complex trading and risk management techniques to seek absolute returns. Globally, hedge funds oversee trillions in assets across strategies ranging from equities and credit to global macro and quant models. Their investor base is almost entirely institutional investors and ultra-high-net-worth (UHNW) individuals, often accessed through private banks or feeder funds.
A hedge fund is a type of investment vehicle that pools money from high net worth individuals and institutions to invest in a variety of assets.
Hedge funds often employ complex trading strategies and leverage investments to generate returns.
They can be actively or passively managed, with some using quantitative models and others relying on human expertise.
Hedge funds typically charge high fees, ranging from 1-2% management fee plus a performance fee of 10-20%.
The industry has faced criticism for its lack of transparency and accountability.
Bringing Transparency to Hedge Funds
The next frontier is bringing that same transparency and composability to the strategies and their managers themselves, not just the underlying assets. This means making active investment strategies and managers more accessible and understandable for investors. While anyone can inspect a DeFi lending contract’s holdings, one cannot yet peer into a hedge fund’s flows, allocations, and economics the same way.
Unlocking Access to Hedge Funds
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Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
