The CEO of a blockchain development company says DeFi has plenty of untapped potential for the global finance sector.
Maximilian Schmidt founded CPI Technologies, a business that has helped several hedge funds gain exposure to cryptocurrencies — giving them the capability to hold these coins themselves.
This can be achieved without relying on external service providers, and in a fully secure way that’s easily adaptable around a fund’s current circumstances.
Schmidt told Cointelegraph: “DeFi is more than a technical gimmick. It reveals one more time the disruptive power of blockchain technology. Banking, insurance, loans, hedge funds, exchanges — just a few examples of business types that can work fully decentralized. It’s only a matter of time until the big players have to decentralize their business cases as it will be the global standard.”
The executive says developing resilient internal infrastructure is the most important task for finance companies that want to offer crypto assets to their clients — and multi-signature wallets are commonly relied upon because they ensure that there isn’t a single point of failure. Crypto funds in a company can get lost or stolen if no proper internal infrastructure is set up.
According to CPI Technologies, full decentralization is another crucial attribute, as this ensures all investment and trading activities can happen within a smart contract. This intricately designed code can ensure that investment decision makers have the freedom to execute investment strategies and make allocation decisions. Here, human strategists or trading bots fueled by artificial intelligence can take control of the fund’s direction.
Blockchain technology ensures that hedge funds and other finance companies have the freedom to define how investors profit from the vehicle they have created. This can also deliver much-needed levels of transparency that aren’t always abundant in this sector. The decision making team can automatically receive a percentage of the gains that are accrued in the form of a management fee or success fee, and these costs can be visible to all investors because all activities take place on a public network.
Insurance against rug pulls
CPI Technologies says blockchain can deliver another compelling advantage for investors who are interested in gaining exposure to a hedge fund. It allows them to create a fully decentralized fund, such as the Decentral Hedge Fund format that the CPI team created.
This format can ensure that the opportunities provided by these investment vehicles are open to all — irrespective of how much money they have to contribute. And, crucially, hedge funds never own the funds that are deposited, with smart contracts ensuring that deposited capital cannot be withdrawn without permission. This is because withdrawals can only be processed once one of two conditions are met: Investors decide to reclaim their deposits, or the hedge funds deduct a management/success fee that has been hardwired into the code.
Blockchain-based decentralized funds also have the opportunity to offer modern alternatives to some of the systems that have been in place for decades. Whereas certificates are traditionally issued, this technology paves the way for new tokens to be created that represent the investment that someone has made. These assets can then be used to claim back a deposit and any profits that have been accrued — or they can be sold on to someone else, in a format that more resembles an exchange-traded fund.
CPI Technologies CEO Maximilian Schmidt says that there is a compelling opportunity to build a lasting bridge between classic hedge funds and a new decentralized world — giving established, licensed financial institutions an irresistible opportunity to futureproof themselves and provide access to an asset class that is subject to ever-growing demand from clients.
The company also stresses that hedge funds can continue to have the flexibility that they need, especially those that covet exclusivity. Fully decentralized smart contracts can be open to all who wish to invest, or just for those who have been selected and approved in advance. Every rule and process can be tweaked in development around a fund’s exacting requirement and customized to their needs. CPI Technologies says its goal is to deliver crystal-clear information on how smart contracts are developed, and the role that tokenomics plays in creating a successful DeFi product.
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