Asset Management via DeFi Protocols

Asset managers can use DeFi to diversify holdings, earn yield, and provide liquidity. Success depends on strong risk controls.

Strategies

• Stablecoin allocations for low volatility.
• Liquidity provision in major pools.
• Tokenized treasury bills or bonds.

Controls

• Position limits and daily monitoring.
• Use audited, battle-tested protocols.
• Segregate wallets; use multi-sig for approvals.

Reporting

• On-chain data makes performance and fees transparent.
• Export transaction history for audits.

Building a portfolio (simple approach)

• Core: stable, liquid assets (e.g., fiat-backed stablecoins, short-duration tokens).
• Satellite: selective exposure to major pools with deep liquidity.
• Liquidity buffer: set aside cash for redemptions and market stress.
• Benchmarks: define yield and risk targets to compare performance.

Risk management

• Market risk: mind drawdowns and volatility; avoid thin or exotic pools.
• Smart contract risk: prefer audited, long-lived protocols; check admin controls.
• Liquidity risk: monitor pool depth and exit routes; test small redemptions.
• Counterparty/issuer risk: vet stablecoin issuers and token providers.
• Operational risk: key management, access controls, disaster recovery.

Governance and policies

• Investment mandate: assets/pools allowed, limits, and risk tolerances.
• Approvals: multi-signature for allocations, rebalances, and new protocols.
• Rebalancing: scheduled or threshold-based to maintain target weights.
• Incident playbook: pause mechanisms, escalation paths, communication templates.

Custody and segregation

• Custodial: regulated providers with recovery support; simpler operations.
• Non-custodial: you hold keys; stronger internal controls needed.
• Segregate wallets: trading vs treasury vs operations to limit blast radius.
• Auditable trails: log approvals, signers, timestamps, and rationales.

Liquidity and exit planning

• Redemption windows: align with investor or treasury needs.
• Slippage controls: use limits and routing for large moves.
• Stress drills: simulate exits during high fees or network congestion.

Reporting and analytics

• Performance: yield (net), drawdowns, volatility, and benchmarks.
• Attribution: which pools/assets drive returns and risk.
• Fees: network fees, protocol fees, management overhead.
• Compliance exports: clean records for audits and regulators.

Integrations

• Accounting: export transactions/valuations to the general ledger.
• Treasury dashboard: real-time balances, limits, and alerts.
• Risk monitoring: track TVL, admin keys, incidents, and pool health.

Step-by-step pilot plan

Define mandate and controls; set asset/pool whitelist.

Choose custody model and set multi-sign policies.

Fund a small allocation; test payments and redemptions.

Integrate accounting exports and dashboards.

Run 6–8 weeks; compare returns, risk, and operations to baseline.

Expand cautiously; increase limits and diversify pools.

What to measure (KPIs)

• Net yield vs benchmark, after fees.
• Max drawdown and volatility.
• Liquidity: average slippage on exits; time to redeem.
• Control adherence: % actions within policy; approval latency.
• Incident rate: exceptions, reversals, or protocol alerts.

Frequently asked questions

• Is DeFi safe for asset managers? With conservative choices and strong controls, yes.
• Can we guarantee liquidity? Not fully—use deep pools and keep buffers.
• Do we need to code? No—use vetted interfaces and providers; automate carefully.
• How do audits work? Keep clean exports and approval logs; anchor proofs where helpful.

Quick glossary

• TVL: Total Value Locked in a protocol/pool.
• Drawdown: Peak-to-trough decline over a period.
• Multisig: Wallet requiring multiple approvals to move funds.
• Stablecoin: Crypto asset pegged to a stable value (e.g., USD).
• Oracle: Service that feeds external data to smart contracts.