Discretionary Long/Short Strategies Have Only Been Available on CEXs. Not Anymore!
In the rapidly evolving realm of cryptocurrencies, there are numerous investment strategies that have become popular among investors. Among these, discretionary long and short strategies have carved a niche for themselves, primarily due to their potential to maximize gains and minimize losses.
To elaborate, these strategies enable investors to capitalize on various market movements, whether they are bullish or bearish. Moreover, unlike passive investment methods, they are active, leveraging the expertise of asset managers to navigate the market’s many ebbs and flows, offering a robust alternative to investment tactics that only tend to work when the market is doing well.
The risks involved are very real.
Traditionally, discretionary long/short strategies have found a home in centralized exchanges, providing a controlled environment for their execution. However, as the tide of decentralization has continued to sweep across the crypto market, the safety of assets on centralized platforms is under scrutiny. Amidst a growing number of scandals, the traditional abodes of these strategies are appearing less invincible.
To put things into monetary perspective, the FBI recently released a report in which it noted an alarming increase in the number of cryptocurrency frauds, scams, and thefts. To elaborate, during 2022 alone, victims reported losing more than $2.5 billion in cryptocurrency investment frauds. Not only that, some studies estimate that between Jan 2021 and March 2022, investors lost more than $1 billion in cryptocurrencies to various scams. Similarly, over the first half of 2023, $656 million worth of funds were lost from crypto hacks, rug pulls, etc.
As a result of this financial turmoil, more and more investors have been nudged towards other alternatives. For example, the promise of decentralized exchanges (DEXs) has attracted hoards of investors, even though a vast majority of them lack the infrastructure for executing discretionary long and short strategies. As a result, investors have found themselves caught between Scylla and Charybdis – i.e. the known risks of centralized exchanges and the unchartered waters of decentralized alternatives.
Reinventing the wheel
As the crypto market has evolved and matured over the past decade, there has been a concerted effort to introduce all of the same financial tools available in the trad-fi realm within the digital asset ecosystem. Kunji Finance, for example, is pioneering this transition, offering a decentralized platform for discretionary long and short strategies. Initially rooted in a centralized framework, the project’s dev team recognized the burgeoning risks associated with CEXs.
Since then, Kunji has metamorphosed into a trustless asset management platform, providing its users with a non-custodial system that ensures investors retain complete ownership of their funds while benefiting from expert asset management advice. Moreover, Kunji integrates both spot and derivatives Decentralized Exchanges (DEXs) into its infrastructure.
As a result, it doubles up as a platform where asset managers can employ long and short strategies to deliver returns akin to hedge funds, irrespective of the pervading market conditions. Kunji’s architecture — referred to as SISO (Single Input, Single Output) — ensures there’s no socialization of returns and is free from regulatory ambiguity, providing a safe harbor in a stormy market.
Looking ahead
With the crypto market set to grow immensely in the near future, it is imperative that the industry matures and grows to a point where it is not faced with extreme day-to-day volatility. In this regard, it is imperative that safe, effective investment strategies — that have been available in the trad-fi realm — be made available to crypto investors, that too within a decentralized framework.
Projects like Kunji Finance are at the forefront of this movement, providing a decentralized platform for implementing safe, time-and-tested trading tools like discretionary long and short strategies — thus leading the way towards a safer, more transparent asset management paradigm.