DeXe Investment Sneak Peek 2: Funds and Base Assets
Continuing our series of posts about Dexe Investment, let’s unbox how one would go about creating a fund.
Let’s say that you are a trader. You have a great reputation. You have a strategy. But how do you get investors to entrust their money to you? You start by creating your fund. Just like a hedge fund, for example, your fund consists of you, your strategy, and rules for investor participation. You’re in control and can start attracting investors. To do that, you need to first define the base asset for the fund. Your base asset can be any crypto — which is a very cool feature that is not available elsewhere.
As the trader, you decide the base asset in which all future profits and losses will be calculated. This will play an important role in attracting investors and differentiating your fund. For example, you could be the only fund in the world to have Orion (ORN) as your base assets — attracting the investors who want to multiply their ORN holdings.
Choosing your base asset is not a decision that should be taken lightly. For example, let’s say that your base asset is Bitcoin. You accept investor funds, put enough of your own funds into the smart contract to be allowed to manage the amount of investor funds you gathered, and get ready to trade.
Suddenly, you see the perfect trading opportunity opening up in ETH. You convert the invested BTC into ETH and trade away. Since ETH is approved for all the traders on the platform to trade with, there is no problem. Your hunch and analysis were spot on — the funds you invested into the trades doubled their ETH value. But, alas, in the same span of time, the value of ETH vs. BTC collapsed. While your profit in ETH was 100%, in BTC value, you were actually -25%.
Needless to say, having a loss in your base asset is negative for your reputation on the platform. It could also upset some of your investors who wanted to increase their BTC value and chose you to trade with specifically because of BTC being your base asset.
Of course, the opposite can just as easily happen: you can have a loss on a trade and still show a gain in your base asset. Regardless, make sure you are careful about your choice of the base asset relative to your strategy and your investors’ expectations.
For investors, having the security of knowing what the base asset is before even joining the fund and holding the trader responsible for making them profit in this base asset is both a security measure and an opportunity to get the best traders/strategies on the market while keeping profits focused on the asset they care about. Success with the base asset proves that the trader is a master and worth raising even more investments. Thus, with a defined base asset, both the trader and investors win.
Dexe.network is a decentralized social trading platform that operates via autonomous smart contracts and includes tools for virtual currency allocation and automatic rebalancing. It eliminates the risks of transferring digital wallet details such as private keys and API or any virtual currency data to a third party. Most importantly, the DeXe Network connects successful traders and followers in a transparent, verifiable way for the benefit of both groups.
Stay tuned for more with us!
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