Words in Asset Management Explained
Finance is a discipline about money flows.
Today we can distinguish TradFi and DeFi, where the latter started to define anything that had to do with virtual money flows with at the intersection of DIY and automation.
With DeFi you cut out the middleman, but also remove the support system which made it easy to operate (not necessarily understand).
To learn more about DeFi, we recommend reading this guide by Finematics.
Composability certainly solves a lot of headaches, but that also means that you should familiarise with concepts in TradFi that inevitably applies also to DeFi. And DeFi with its creative power builds upon these concepts to bring about innovation through composability. A virtuous cycle that you want to be a part of.
We focus on Asset Management, since that’s what DEXTF is all about.
Here we list the words that you’ll find throughout your interactions with DEXTF Protocol. A brief explanation is provided which might not be exhaustive but should be clarifying the point (in case that isn’t helping just let us know on our channels.).
Also, if you do think there are more words that should be included here, do provide feedback.
Mint | Act of creating a new token. Usually used when fiat coins are minted. A DeFi example is when DAI is minted using Maker by providing ETH as collateral.
In DEXTF you can mint an XTF fund token by providing assets of your choice from the supported tokens list.
Redeem | Act of destroying an existing token to take back what’s inside of it.
In DEXTF, other than minting a token, you can also destroy it and take back assets that were first provided when the investor (does not need to be you) decided to mint it.
Pro Tip: This also means that liquidity for the XTF fund token is important, but it’s not the end of the world since you can still use the protocol to redeem real assets from it which you can then dispose of individually.
Assets | we refer to it generally as synonym for token
Underlying assets | These are tokens which if put together through DEXTF Protocol can mint you an XTF fund token
XTF fund token | An ERC-20 token that represents a fund made of underlying assets and minted by a Portfolio Manager.
Fund | Is a pool of assets, which usually provides diversification and economies of scale benefits to the investor.
ETF | Stands for Exchange Traded Fund, that means exactly what is says it means.
You can trade these funds on an exchange and became a very popular and liquid investment vehicle in TradFi.
DEXTF is trying to replicate this success story in DeFi.
APY | Annual Percentage Yield is the metric used by DeFi protocols to attract new users usually by way of distributing tokens in exchange for bringing traction. Very often confused, since most protocols do not offer compounded returns on the farms.
APR | Annual Percentage Rate is a simple, non-compounded rate of return on investment which apply to most DeFi farms.
Pro Tip: Pay attention to the “A”. These numbers are usually very volatile and do not stay high for long.
Liquidity | is a measure of how sensitive is the price of an asset to large trades.
If liquidity is high, large trades are done with low slippage.
If liquidity is low, large trades are done with high slippage.
Slippage | is the difference in $ terms between what you could have gotten versus what you actually get. This is true for both sides of the trade.
Liquidity Pool | a group of 2 or more tokens that are paired against each other in different ratios (usually 50/50) that is supposed to get larger through liquidity mining incentives.
Impermanent Loss/Gain | when you provide the tokens to be paired in a liquidity pool, you suffer a potential loss/gain depending on whether the token price goes up or down.
If price of token X goes up versus ETH, you start having more ETH and lose token X upside.
If price of token X goes down versus ETH, you start having more X by losing ETH, and therefore its upside.
AUM | Assets under Management, this is a metric often used in Asset Management to indicate how big is the portfolio of a fund manager
Ticker | is the name of an asset when listed. In DEXTF examples of tickers are:
XTF.SWCSH1
XTF.000EXC
XTF.TTTYFI
Pool2 | Liquidity Pool of project tokens against ETH
Marketplace | is the in-house decentralized exchange to trade structured tokens.
Structured Products (Tokens) | these are tokens that use composability to create a pre-designed payoff scheme at maturity. In DEXTF, we created a first product which we called SFT (Structured Floor Token).
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