DeFi Hedge Funds- Melon Protocol: A Truly Transparent Fund

• Toshendra Kumar Sharma
• September 11, 2020

If you are wondering, what is a hedge fund? How does it differ from DeFi hedge funds? Why is it gaining a lot of public attention? What does it all offer? What is Melon? How can Melon provide a viable solution? This article will answer all these questions.

So let’s get started.

 

Table of Contents

 

• Basics of Hedge Funds
• How DeFi Hedge Funds Differs From Traditional Hedge Funds
• Introduction to Melon Protocol
• Melon Protocol a Solution
• Future Scope

 

Basics of Hedge Funds

 

Before understanding DeFi-based hedge funds, let’s understand the basics of traditional hedge funds.

Hedge funds are alternative investments using pooled funds that apply different tactics to earn an active return for their investors. Such funds are known to face fewer regulations as compared to mutual funds, but these are not available to the average person and are accessible generally to accredited investors. Compared to mutual funds and other investment vehicles, they require fewer SEC regulations.

Starting a hedging fund is not that easy because the initial investment required to join is approximately $100k to $1 million. These funds have had exceptional growth in the last few years and have been known to be associated with multiple controversies.

Since hedge funds are private investment vehicles, they have complete control to decide which investors can invest and which cannot. Here comes the role of DeFi hedge funds that allow decentralized asset management.

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How DeFi Hedge Funds Differs From Traditional Hedge Funds 

 

Basically, the concept of hedge funding aims at reducing risk, but the goal of most hedge funds is to maximize return on investment. Traditional hedge funds have the right and power to do what they want as long as they reveal the approach upfront to investors, which indicates they are unsafe.

As already mentioned, hedge funds are private entities and have few public disclosure requirements, which means they lack transparency. On the other hand, Blockchain is an immutable distributed ledger that allows every transaction to be viewed, meaning complete transparency. The better transparency, the more investors and other constituents will trust the funding mechanism.

 

Decentralized finance works without involving any third-party; therefore, DeFi hedge funding eliminates huge layers of bureaucracy and additional costs. Hedge funds have a fee structure as “2 and 20,” where investors pay a 2% in management fee(for operations of the fund) and pay 20% to the fund manager.

Hedge fund investment relies on the concept of ‘more risk for better performance,’ which could lead to huge losses. Heavy operational costs and administrative costs are also eliminated in DeFi hedge funds like Melon, which offers decentralized asset management.

 

Introduction to Melon Protocol

 

Melon’s official website describes itself as an Ethereum-based protocol for decentralized on-chain asset management, allowing people to manage their assets in a customizable and safer environment. Unlike traditional hedge funds, it allows anyone to manage and invest in customized on-chain investment vehicles. The protocol empowers people and entities to create their digital asset funds, get followers, and new investors by showing off their track record.

 

Melon aims to transform digital asset management by building a reliable and transparent system, without involving any third-party intermediaries. It aims to bring financial empowerment, freedom, open-source, and the concept of decentralization among billions of people around the world.

Melon is enabled by protocol-level integrations with other DeFi protocols, which make it exceptional.

 

Melon Protocol a Solution

 

With Melon protocol, the fund set-up cost is a few hundred dollar and takes just a few minutes. It does not involve any complicated and expensive audits because records in the Blockchain are stored transparently and immutably. People have complete custody over their assets and, when required, can be redeemed without any third-party dependencies.

Unlike traditional hedge funds where transactions take weeks, Melon ensures that transactions are almost instantaneous, which does not require settlement services. Since Melon automates mainly all the back-office functions and intermediary works, it, therefore, cuts all the operating costs of managing a fund.

Future Scope

 

Melon definitely holds a special place and a promising future in the DeFi space. Unlike traditional hedge funds where investments involve complex procedures, the Melon protocol provides decentralized on-chain asset management that allows people and entities to manage their assets in a customizable and safer environment. Protocols like Melon can help us in getting rid of high barriers to entry, which have kept hedge fund investment out of reach for many.

 

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