On-chain Asset Management’s Evolution Towards Alpha Investment
Crypto on-chain asset management has gone through two evolutionary phases and is now entering into the third. The first phase was the speculative HODLing of scarce assets, followed by sentiment-driven beta investing. Now, we’re entering the next phase — alpha investing as a portfolio strategy.
Finding alpha on-chain in DeFi versus in traditional finance is like trying to prove string theory versus taking an AP Physics class. The latter is quite challenging but manageable with some real effort, but the former is damn near impossible because you don’t even know where to start. Even compared to crypto investing in centralized markets, the programmability and decentralization of protocols, along with native inefficiencies of this nascent market, make alpha hunting extremely difficult.
In general, alpha in decentralized markets possesses unique characteristics due to a lack of straightforward and commonly accepted analytical methods. Alpha takes many shapes and forms, be they infrastructure (validators and nodes), protocol (financial primitives like Uniswap), governance (changing the rules such as Curve governance proposal to chase liquidity incentives), information (unregulated, inefficient, asymmetry of information), and analytical (data-rich on-chain information). On top of this, assets all interoperate and can be arbitraged in ways that the world has never experienced before. These unique properties translate into exciting and unprecedented alpha opportunities.
Over the next decade, alpha-generating opportunities will continue to grow exponentially. Anyone can participate and contribute to this economy, whether through digital asset investments or the creation of products and services. The catch, however, is that alpha searching will continue to get more complex with the expansion of asset classes and use-cases. It will be hard to identify alpha, trade, manage, and track assets. People will need an efficient and elegant way to gain exposure.
The critical question now is:
How can we empower users to engage in wealth creation and management, and get them ready for this brave, new, alpha-investing world?
Finding Your Alpha Pack
We envision Exponent as a crypto-native asset management platform of the people, for the people, by people. With resources and talent being rapidly sucked into the crypto space, we are beginning to see exponent(ial) adoption of tokenized crypto assets and use cases. Crypto will eat the world 😼
To us, the future of asset management and wealth creation means:
- We’re all venturing investors — Crypto is the first opportunity that allows any investor to participate in an evolving asset class from the very beginning. There is no exclusivity. Anyone can be a part of this innovative, evolving new technology. Rather than buying or trading an asset based solely on its price, investors will want to understand its value. Numerous factors go into the market performance of an asset, with the price as an output. Investors will develop their own theses on why assets are worth buying or selling, and they will want products that allow for the expression of those views.
- We’re looking for investment resonance. With the rise of Emerging Digital Nations, alpha opportunities are highly scalable and unrestricted by location, asset type, or the laws of physics. Unlike the stock market, valuation models for crypto are still early and evolving. Variations in investment methodology should spur productive discourse and drive breadth and depth of due diligence. Curating data and enfranchising diverse views will be important to discovering alpha. What this means is the way two people value an asset at a certain level is probably very different. The lack of a standard valuation methodology, like the P/E or P/BV ratios used in TradFi, allows for creativity and innovation in crypto investing. Investors are seeking methodology, products, and indices that resonate with their views and help realize their theses. It’ll be important for people to find their lodestars, their tribes, and the tools to provide feedback and refine their investment prowess.
- We want to manifest our views. With the growing popularity of protocols, the evolving complexities of the crypto ecosystem, and the native creation of internet value, asset management infrastructure will need to have high configurability and generalizability to help bring everyone along.
Block-by-block, Exponent is building a platform that answers the three points above by addressing the following market needs:
- Infrastructure: We are partnering to build on Enzyme Finance, and starting with the Ethereum network in order to build applications that can be launchpads for data-driven investment products.
- Application: We are building on-chain tools, sets, and processes, bringing on products based on analytics and fundamental insights to the market. The Exponent platform makes sure that it is easy to spin up and manage alpha products while ensuring that rebalancing can be done as easily and efficiently as possible. Reach out if you’re looking to launch a product/strategy. Help contribute to core development or partner integration.
- Community: We are combining a community-driven social intelligence network to improve and enhance digital asset investing for all, through a rational and fair price discovery mechanism for capital access and alpha generation. It is critical to align incentives among users, strategists, creators, and stakeholders to directly participate in the product growth and share in the benefits. Come join us on Discord and start sharing ideas!
We’re in an age of exploration, migration, and innovation within new emerging economies. There, people will socialize, shop, and invest in worlds that can expand and shift with minimal restrictions. This is when we re-invent finance and asset management to serve and include everyone. The Exponent platform will play a critical role in turning new possibilities into generational wealth.