Cryptocurrencies are one of the most volatile investment options available to investors today. Yet, as the rule of investment goes, with great risk comes great reward.
We often hear stories of people making humongous returns with their crypto investments, and though their success may at first seem like dumb luck, there is usually method behind the madness. The people who make such returns on their investments have not just HODLed their assets, but took time to research the market, create proper investment strategies, and, crucially, regularly re-balanced their portfolios.
Portfolio rebalancing is a pillar behind the success of most crypto investors. It helps minimize risk and maximize profits. However, the process of re-balancing a crypto portfolio is typically quite a hassle, and, for beginners, implementing it might prove to be very challenging. This is why we believe ExpX Finance’s automatic portfolio rebalancing service could be a game-changer for the crypto investment space.
To better understand the importance of this concept, it is first necessary to understand what portfolio rebalancing actually is and why it is a necessity for investors.
Portfolio rebalancing is the act of balancing out assets in an investment portfolio to ensure that they remain (or automatically return to) their predetermined weightages. For example, consider a portfolio that has 20% each of ETH, BNB, BTC, ADA, and MATIC. Now, let’s say that ETH performs really well in the market, and as a result, its weightage within the portfolio increases to 25%, while at the same time ADA performs poorly, and decreases to about 15%. This creates a disparity in the weightage of the various assets, and can lead to the investor suffering from huge losses if the highest weighted asset subsequently starts to fall!
To avoid this, investors rebalance their portfolio by selling ETH at its higher price while the going is good, and buying ADA at its lower price to rebalance their proportions and bring them back to their original state. This process is typically time-consuming and requires investors to constantly watch the market to get it right. So, instead, investors usually outsource this task to dedicated professionals, and end up spending a fortune on it.
In a game-changing service, ExpX provides automatic rebalancing to the liquidity providers and investors on its platform. Let’s now check out how ExpX makes this possible.
Automatic Portfolio Rebalancing on ExpX
ExpX Finance is a trading protocol, yield farming platform, and multi-asset portfolio manager built on the third-generation blockchain Binance Smart Chain (BSC). It allows users to make decentralized swaps of assets with minimal gas fees, while also facilitating the creation of both public and private liquidity pools that can each hold up to eight unique crypto assets.
The vast majority of the popular yield farming platforms today allow the creation of pools with a maximum of only two assets, and ExpX’s eight-asset pools strategy is what makes all the difference. This strategy essentially allows liquidity providers to diversify their investment portfolio within a single pool, eliminating the need of going from platform to platform in search of high-yielding pools, and manually coordinating swaps between them.
The ExpX Protocol is engineered in such a way as to ensure that assets across the pools always remain at the weightages assigned while creating the pool. The protocol achieves this by using specific formulae to calculate the exchange rates and ensure that they match the market rates. Whenever there is a significant difference in exchange rates, arbitrageurs step in to make a profit off of this difference, and by doing so ensure that the exchange rates within the ExpX pool remain at market levels - it is a win-win situation.
If, for example, a user makes an investment by providing liquidity to five different assets within a pool, this readjusting of exchange rates also returns the asset weightage back to its original state and rebalances the portfolio for the investor. For instance, if the asset ratio in a pool was set to 20% BUSD, 40% BNB, 20% CAKE, and 20% WBTC, the exchange rates are calculated in such a way that this weightage is always automatically maintained regardless of the value fluctuations of each individual asset.
Onwards and Upwards
ExpX Finance is a new platform with the ambitious goal of becoming the Balancer protocol for the BSC. Due to its innovative financial initiatives, it has already managed to create a buzz in the marketplace, and amongst investors in the know. The automatic portfolio rebalancing feature of the protocol adds to its long-term relevance on BSC, and makes for a strong value proposition for the Protocol by enabling its users to eliminate the hassle, stress and human error typically associated with manual portfolio rebalancing.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.