A Brief Analysis of CeFi Single-Asset Wealth Management

Introduction

In 2024, we are on the brink of Bitcoin’s fourth halving. Amidst the halving market’s fermentation, investors demand stable wealth management and risk-hedging derivatives. Simple to operate and with relatively stable returns, CeFi wealth management products gradually become the leading business direction of exchanges and financial service institutions. These product types have evolved from the initial Single-Asset interest-earning to dual currency wealth management, staking, lending, strategy trading, and other more diversified, large-scale, differentiated products.

Common Wealth Management Methods in Cryptocurrency

DeFi (Decentralized Finance)

DeFi wealth management products refer to DeFi protocol products built on top of Layer 1 or Layer 2 blockchains like Ethereum, Arbitrum, etc., offering users asset allocation, management, and interest-earning functions. Users can interact directly with these protocols through a Crypto wallet, usually requiring the transfer of assets in the wallet to these protocols’ smart contracts. Subsequently, these assets are allocated to other protocols in the market, obtaining profits by providing liquidity for various economic activities in the market, such as transactions and lending.

Decentralized financial products mainly include lending, yield aggregators, structured products, liquidity mining, and liquidity staking. After years of development, the DeFi ecosystem has undergone tremendous changes, with the total value locked (TVL) reaching a peak of $228 billion.

https://defillama.com/

Features: No third-party custody of funds, free combination between different protocols, flexible entry and exit times, and automation.

CeFi (Centralized Finance)

CeFi refers to centralized finance, where users entrust their funds to a trusted third party, with the custody of funds based on trust in this third party. In the cryptocurrency domain, CeFi has gradually evolved to represent the concept of the existing centralized financial system.

CeFi typically offers a comprehensive system and services to meet the needs of various customers. It is also more amenable to regulation, achieving compliant operations, reducing systemic risks, and avoiding the potential risks associated with interacting with smart contracts.

In the field of stablecoin finance, CeFi service providers mainly include financial products offered by centralized exchanges, Crypto Banking, and traditional financial institutions. Exchanges, leveraging their large user base and rich capital reserves, create unique advantageous conditions for their financial business.

The stablecoin financial products offered by exchanges are more akin to traditional banking financial products, introducing new products based on blockchain characteristics, including demand finance, fixed-term finance, DeFi mining, liquidity mining, etc.

Features: Low learning cost, high opacity, significant regulatory impact.

Summary

The advantages of DeFi financial products lie in their high transparency, low entry barriers, and transparent earnings. However, their disadvantage is that they are severely affected by market conditions, with extremely low returns when the market is unfavorable. Currently, only lending protocols can barely maintain a certain scale, while the TVL (Total Value Locked) of other types of earning protocols has decreased significantly. Most financial products offered by CeFi institutions suffer from opacity in scale and unclear sources of earnings. A significant portion of the earnings from CeFi financial products comes from participating in DeFi financial products as agents. They also offer a richer variety of financial products with relatively higher yields. Hence, a highly recognized CeFi platform has become one of the preferred choices in the current market environment.

CeFi Financial Service Providers

Looking at the issuers of CeFi financial products, they mainly include cryptocurrency financial service institutions, digital asset wallets, and exchanges. We will introduce a well-known institution from each area.

Cryptocurrency Financial Service Institution

Babel Finance is a comprehensive cryptocurrency financial service provider established in August 2018, mainly serving high-net-worth individuals and institutional investors with crypto asset deposit and loan, asset management, brokerage, and derivatives trading services. After establishing a core customer base, Babel Finance has gradually introduced customized new products based on customer needs, such as Babel Private, a high-net-worth customer personalized service similar to China Merchants Bank’s Golden Sunflower service.

According to official news, Babel Finance announced emergency measures in 2022 to improve its liquidity situation and has obtained a deferment of debt repayment to alleviate liquidity pressure.

Digital Asset Wallet

HyperPay is a digital asset wallet integrating custody wallet, self-custody wallet, joint custody wallet, hardware wallet, and other services, with features including wealth management, crypto-to-crypto trading, fiat trading, instant exchange, collateralized lending, market tracking, multi-signature co-management, asset custody, merchant payment, and more.

HyperPay was initially registered in Melbourne, Australia, launching the HyperPay digital wallet project in 2017 and officially launching in February 2018.

HyperPay serves both B2B and B2C users, offering custody wealth management wallets for ordinary coin holders and self-custody, joint custody, or customized hardware wallet solutions for large asset customers and institutional users.

Exchange

Gate.io is a well-established cryptocurrency exchange. Lend & Earn is a professional financial product offered by Gate.io to users, aiming to efficiently match users with idle assets and borrowing needs. By enabling flexible lending of funds, users can earn returns based on the current annual interest rate determined hourly. On December 4, 2023, Gate.io’s Lend & Earn finance volume reached a new high, surpassing the milestone of 500 million USDT in total value.

CeFi Single-Asset Wealth Management Products

Influenced by the crypto market crash in 2022, the concept of safe-haven assets has been raised and given importance once again. The concept of digital currency wealth management has started to stand out in the market. The more common single-asset digital currency wealth management methods on the market mainly include balance, fixed investment, and dual-asset wealth management.

Balance Wealth Management

Balance wealth management is a coin appreciation product that allows deposits and withdrawals at any time, calculates interest by the hour, and supports custom interest rates. After users transfer assets into balance wealth management, the system will determine at every hour, based on the user-set lending rate, whether the lending is successful. If successful, interest for that hour is earned; otherwise, no interest is received, and the user must wait for the next hour’s matching result.

Features: Subscribe at any time, redeem instantly, flexible, and zero risk, helping users to improve the utilization rate of idle funds at any time.

Fixed Investment Wealth Management

Fixed investment is a relatively low-risk long-term investment method, especially suitable for those investors who wish to accumulate assets in the cryptocurrency market and avoid frequent buying and selling. As the name suggests, it involves investing a fixed amount of money into a selected combination of coins at regular time intervals. During periods of significant market volatility, employing the appropriate fixed investment strategy allows for purchasing more assets at lower prices with the same investment amount, helping users achieve more substantial returns.

This strategy is simple to operate, using idle funds to buy without selling most of the time, then selling all at the same time for a profit, suitable for those who do not have time to monitor the market, operate infrequently, and can invest funds for the long term. The ideal return curve of fixed investment is a smile curve.

Features: Small single investment amount, risk diversification, and cost averaging.

Dual-Asset Wealth Management

Dual-asset wealth management is a short-term investment product with floating returns, essentially a structural earn-coin product composed of spots and options, which was commonly used in the foreign exchange market in the early days. Dual-asset wealth management obtains potential returns by linking to the price movement of the digital asset index. Compared to other wealth management products, dual-asset wealth management has controllable risk and higher returns, suitable for more rational, professional investors. Dual-asset wealth management defines the investment currency, settlement date, and linked index price at issuance.

Source: https://www.gate.io

Features: In stable market conditions, it helps users earn a relatively fixed rate of return.

CeFi Single-Asset Financial Product Case Study

Centralized exchanges, aiming to enhance user stickiness and attract more users, expand their offerings beyond trading services to include financial services. Gate Finance, operated by the centralized exchange Gate.io, offers financial services. Currently, it provides 11 types of financial products, including Single-Asset financial products, ETH2.0 Staking, Structured Products, and Liquidity Mining. Here, we further analyze the Single-Asset financial product offered by Gate.io.

Lend & Earn

Lend & Earn is a financial product developed by Gate.io. It matches users with idle assets with those in need of loans, determining the annualized interest rate on an hourly basis to generate earnings. After subscribing to Lend & Earn, the system decides whether a loan is successful every hour, based on the interest rate set by the user and the actual loan demand. The system also determines the current annualized interest rate for that hour, granting interest for successful loans.

Lend & Earn supports customizing the lending rate and allows for deposits and withdrawals at any time. Users need to set a minimum lending rate when subscribing to the Lend & Earn product. After a successful loan determination at the hour, earnings are calculated based on the determined rate, which is often higher than the user’s set lending rate, settling the interest earned at every hour. It’s important to note that if the lending rate is too high, resulting in a failed loan, no interest is earned for that hour. Also, if funds are redeemed before the hourly determination, no interest is earned for that hour. At the hour after subscription, the system starts matching the financial needs of the lender with the loan needs of the borrower, auctioning from the lowest to the highest lending rate based on loan demand until all borrower needs are met. The highest lending rate matched during the hour becomes the annualized interest rate for that hour. If the current annualized interest rate for the hour is higher than the user’s set lending rate, the loan is successful at the current annualized rate. If it’s lower, the loan fails, and no earnings are generated. If the rate is equal to the user’s set rate, the loan may partially succeed or fail. Funds from failed loans can be immediately redeemed, and users can redeem at any time after a successful loan, enjoying the interest earned for that hour, with funds credited at the next hour.

According to Gate.io, as of January 21, 2024, its Lend & Earn platform had a total volume of 673 million USDT, with an annualized yield of 9.59% over the past 30 days.

https://www.gate.io

Advantages of Using Lend & Earn

• Opportunity to earn high returns
• Provides hedging opportunities
• Unaffected by market fluctuations, allowing for earnings at any time

Auto-Invest

Auto-Invest is a financial product for cryptocurrencies created by Gate.io, where users can set up multiple dollar-cost averaging plans according to their strategies.

Choosing the right buying and selling times has always been a challenge for all traders in the highly volatile cryptocurrency market. Finding the exact buying price in such a market is as difficult as finding a needle in a haystack. Without a good trading strategy, investors can easily suffer losses in both bull and bear markets.

Famous examples include Moji Weather’s founder and Dfund’s founder, Zhao Dong, who suffered continuous liquidations while trading Bitcoin futures in 2014 and 2015, resulting in losses of hundreds of millions of RMB. However, many savvy investors have accumulated quality digital assets through consecutive bull markets, ultimately achieving financial freedom, such as Li Xiaolai, the famous founder of New Oriental, who achieved financial freedom by accumulating Bitcoin.

Dollar-Cost Averaging Example: For instance, a user who started buying $10 worth of Bitcoin every week for a year from a year ago would now have Bitcoin worth $3867, a 6% increase from the invested $3650.

Source: https://dcabtc.com/

Advantages of Using Auto-Invest

• Small investment amounts reduce financial stress, making it easier to continue investing
• Investors can easily plan, avoiding temporary cash shortages
• The principle is straightforward, making it easy for beginners
• Dollar-cost averaging in a bear market can spread risk, preventing large losses and missing low-price buying opportunities
• Helps investors develop good discipline and saving habits
• Shields investors from market volatility and psychological stress, allowing them to focus on other areas
• Generally, financial markets grow over time, so long-term investors in blue-chip assets can achieve substantial returns

Dual Investment

Dual Investment, created by gate.io, is a short-term investment product involving two cryptocurrencies, offering returns regardless of market direction. The yield offered by Dual Investment varies with the market, but once an investment is made, the yield is fixed, and orders cannot be canceled or redeemed early. Upon settlement, investors are guaranteed a fixed return in the original cryptocurrency, but market fluctuations may convert the investment into another currency, a key feature attracting investors.

In short, Dual Investment allows users to deposit one cryptocurrency and earn based on two assets. After investing, users lock in a yield and earn as the value of the invested asset increases. The earnings depend on the performance of the staked asset on the maturity date.

For example, the settlement currency for a BTC Dual Investment purchased with BTC is determined by the settlement price. If the settlement price is above the peg price, earnings are in USDT; if below, earnings are in BTC.

https://www.gate.io

Advantages of Using Dual Investment

• High yield: Offers higher returns compared to other financial methods
• Transparent rules: Investment rules are fully transparent, with earnings depending on market judgment
• Stable returns: Fixed profits regardless of market ups and downs
• Flexible terms: Investors can choose investment terms that suit their style

Conclusion

Currently, Gate.io holds a significant advantage in the cryptocurrency financial market, offering a variety of financial products suitable for users with different risk preferences and strategies. Gate.io’s financial products consistently rank high in annualized yields among platforms. This means that despite the volatile crypto market, Gate.io can provide users with relatively stable capital appreciation, protecting their assets.