The world of blockchain is booming, and global investor interest in crypto assets remains high. Cryptocurrencies are not just a new payment method—they represent a philosophy distinct from traditional finance. As decentralized applications continue to expand, new investment tools like on-chain funds have emerged.
The success of BlackRock’s tokenized fund (BUIDL) has accelerated the growth of "financial asset tokenization." More recently, on August 22, Grayscale Investments, the world’s largest crypto asset management company, announced the launch of the Grayscale Avalanche Trust on the Avalanche blockchain.
Amid ongoing buzz around cryptocurrencies and crypto理念 (crypto philosophy), on-chain funds are gaining traction. What makes them so compelling?
Understanding Cryptocurrency and Blockchain
What Is Cryptocurrency?
Cryptocurrency, often abbreviated as crypto, is a digital asset built on blockchain technology. It uses cryptographic techniques to ensure secure and often anonymous transactions.
- The first and most famous example is Bitcoin. Others include Ethereum, Ripple, and thousands more.
- Its three main applications today are: store of value, means of payment, and investment vehicle.
What Is Blockchain?
Think of blockchain as a public, distributed ledger that records all transaction data.
- Once information is recorded, it cannot be altered, ensuring transaction security.
The Philosophy Behind Crypto
The core ideas behind cryptocurrency are often referred to as crypto理念 (crypto philosophy), which emphasizes three key traits:
Decentralization
Unlike traditional financial systems controlled by central banks, cryptocurrencies are maintained by numerous nodes. No single entity has control over the entire network.
Security
Cryptocurrencies use robust encryption to protect transaction data. The immutability of blockchain further enhances security.
Transparency
- All transactions are publicly visible and verifiable by anyone.
- This enables financial inclusion, allowing people without bank accounts to access financial services.
What Is an On-Chain Fund?
An on-chain fund is a new type of investment fund that operates on the blockchain. It uses smart contracts—self-executing agreements with predefined conditions—to automate investment, management, and distribution of assets without human intermediaries.
Key Benefits of On-Chain Funds
- Lower Investment Thresholds: You can start with a small amount of capital.
- Diversified Portfolios: Gain exposure to multiple crypto assets with a single investment, reducing risk.
- Transparency: All transactions and holdings are publicly verifiable on the blockchain.
- Flexibility: Many on-chain funds allow investors to enter or exit positions at any time.
On-Chain Funds vs. Traditional Funds
"On-chain fundization," also known as financial asset tokenization, refers to using blockchain technology to represent ownership of traditional assets—like real estate, stocks, bonds, or funds—via digital tokens.
In simple terms, it means investing directly in decentralized finance (DeFi) products and protocols on the blockchain, rather than through traditional exchanges.
Key Advantages Over Traditional Funds
- Real-Time Settlement: Blockchain enables instant settlement, improving capital efficiency.
- Transparency: All transactions and asset allocations are visible in real time.
- Reduced Lock-Up Periods: Traditional funds often impose long lock-up periods, limiting liquidity. On-chain funds typically allow instant entry and exit.
- Investor Control: Investors retain direct control over their assets via smart contracts.
- Innovation: On-chain funds enable novel features like automated management, dynamic fee structures, and decentralized governance.
Risks to Consider
While promising, on-chain funds come with certain risks:
- High Volatility: Crypto markets are highly volatile, and prices can fluctuate dramatically.
- Regulatory Uncertainty: Government policies on cryptocurrencies are still evolving and may change.
- Scam Projects: The crypto space has its share of fraudulent schemes. Always do your due diligence.
How to Buy Cryptocurrency and On-Chain Funds
- Choose a Reliable Exchange: Select a platform based on security, liquidity, and supported currencies.
- Register an Account: Sign up and complete identity verification.
- Deposit Funds: Transfer fiat currency (like USD or TWD) into your exchange account.
- Buy Cryptocurrency: Navigate to the trading section and place an order for your desired crypto asset.
- Invest in On-Chain Funds: Many exchanges offer on-chain funds or tokenized assets. Check their product listings for options.
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Frequently Asked Questions
What is the main advantage of on-chain funds?
The primary benefits are transparency, lower costs, and faster transactions. Since everything is recorded on the blockchain, investors can verify holdings and activities in real time.
Are on-chain funds safe?
While blockchain technology itself is secure, the crypto market is volatile and relatively young. Always research funds thoroughly and use reputable platforms.
Can I withdraw my money from an on-chain fund at any time?
Many on-chain funds allow instant redemptions, but terms vary. Check the specific fund’s rules regarding liquidity and withdrawals.
Do I need a lot of money to start investing in on-chain funds?
No. One of the key advantages is the low entry barrier. You can often start with a small amount.
How do on-chain funds differ from ETFs?
While both offer diversification, on-chain funds operate on blockchain with smart contracts, enabling greater transparency and faster settlements compared to traditional ETFs.
What is asset tokenization?
Tokenization refers to converting rights to an asset into a digital token on a blockchain. This can include real estate, art, or financial instruments, making them easier to trade and divide.