Crypto & DeFi Are Combining To Make Hedge Funds More Accessible

For big money investors, hedge funds are often seen as a ticket to more profitable returns than if they were investing under their own judgment. Hedge funds effectively pool the resources of multiple investors together, giving them extraordinary leverage combined with the ability to make bets on exclusive assets.

They’re different from traditional investment vehicles such as mutual funds in that they use every possible tool in their pursuit of bigger profits. For instance, they can make direct investments in private companies, go “short” against an asset and acquire convertible bonds, where the upfront cash is initially offered as a loan but can later be converted into ownership.

Hedge funds often use leverage to accelerate these bets. While it’s risky to borrow on margins, because this increases the potential for losses, it simultaneously also increases the potential profits to be had.

The real secret to most hedge funds’ success is that they’re actively managed by a team of financial experts whose knowledge of the markets they operate in is second to none. Many investors believe hedge funds can offer guaranteed returns, but investing in these institutions is not for everyone.

The reality is that most people will never have the opportunity to back a hedge fund. They are elite investment vehicles that are usually invitation only. The minimum buy-in is often well over $1 million. While smaller hedge funds do offer access for less than a million dollars, investors will still likely have to front up several hundred thousand readies. Moreover, hedge funds are typically a long-haul investment, with investors required to commit their funds for several years.

It’s not just the hedge funds themselves that raise the bar. The U.S Securities and Exchange Commision, under the Dodd-Frank Act, set its own rules on what kinds of investors can qualify. They stipulate individuals must have a net worth of at least $1 million, not including the value of their home, to become an “accredited investor”.

A decentralized hedge fund?

It’s for these reasons that the average person has never been able to take advantage of the big profit potential that hedge funds offer. However, that is all set to change thanks to the decentralized nature of cryptocurrency, which allows anyone to participate in any kind of venture anonymously, with as much or as little as they desire.

Kunji Finance is a newer investment vehicle that’s entirely focused on the cryptocurrency market, but even so, in many ways it acts just like a traditional hedge fund, providing investors with active management of their funds.

With Kunji, investors are free to participate in a range of actively managed strategies, gaining access to portfolios that are managed on a day-to-day basis by real, human experts. The portfolios are designed to optimize returns and minimize risk, and bring a new level of transparency while ensuring investors remain in full control of their funds.

Kunji, which is currently in beta, plans to launch later in 2023 with an initial three different investment strategies. Investors will be able to study these in-depth in order to ascertain both the profit potential and the level of risk. It means everyday investors will finally be able to benefit from the same active management by professional traders that has, until now, always been exclusive to hedge funds only.

The advantage of being a decentralized finance protocol is that Kunji can offer a non-custodial approach that ensures the safety of user’s funds. The platform does not hold investor’s funds, but instead allows users to retain full control of them at all times, meaning they can withdraw their assets at any time. With Kunji, the way it works is that users deposit their funds and grant trading rights to the asset manager, allowing that person to execute trades on their behalf. However, they always retain full custody of their capital and, hence, the ability to pull out at any time. It’s powered by smart contracts on the Arbitrum blockchain, which facilitate peer-to-peer trading of digital assets without needing any intermediary.

DeFi also has the benefit of being completely transparent and accessible. Investors can participate no matter where in the world they are based. Moreover, because the underlying smart contracts are open-source, any user is free to see exactly how their funds have been invested. Every transaction made by the fund is recorded publicly on the blockchain, so anyone who wants to can track the performance of the fund over time.

The democratic nature of Kunji’s open platform is underscored by its community governance. Anyone who holds KNJ tokens is allowed to make proposals and vote on them, meaning they can have a say in all issues related to it, including how the platform is run and how profits are distributed. This even extends to the asset managers themselves. While anyone can apply to run a fund on Kunji, they will only be allowed to do so if they win the backing of the community. Asset managers must then deposit a specified amount of KNJ tokens based on the U.S. dollar value of the assets under their control, as a kind of security guarantee.

Eliminating Elitism

With its decentralized hedge fund-type structure, Kunji is a unique investment platform that offers strategies where asset managers can take both long and short positions. It provides a way for retail investors to access hedge fund-like products for the first time, with no minimum investment required and no lock-in of their funds.

Throw in the utility of the KNJ token, which helps to distribute risk and ensure that asset managers’ goals are aligned with those of the platform’s users, and it looks like Kunji can become an extremely enticing new way for investors to build their wealth.