DeFi should be viewed as a portfolio construction tool, a panel of experts told a packed room of advisers at this year’s Adviser Innovation Summit in Melbourne.
“Once it becomes regulated, it will be essential portfolio management knowledge to bring in these new asset classes into the portfolio and what you offer your customers,” said Lisa Wade, CEO of DigitalX and a board member of Blockchain Australia.
Cryptocurrency and decentralised finance regulation is currently being looked at by a number of regulators.
In conjuction with ASIC, the Treasury in March released its consultation paper on a proposed regulatory framework for crypto-asset secondary service providers.
The framework proposed a tailored licensing framework for crypto-asset secondary service providers, which would sit beside the existing Australian financial services (AFS) and market licensing regimes for crypto-asset financial products.
In essence, this would propose obligations on firms that provide access to crypto-assets and custodial services.
Submissions to the consultation ended last week and while the review was actioned by the previous government, Labor is expected to continue in a similar direction although no policy position has been vocalised to date.
Commenting on the regulatory path, Ms Wade said regulation is “absolutely” welcome.
“Nobody likes to see anybody lose money, especially not in financial markets, especially not moms and dads.
“We welcome regulation… What we see from the Labor government is that we think that they’ll focus on consumer protection, which is a huge tick, and also from my point of view what’s very exciting is that I think they’ll focus on the environmental impacts as well,” Ms Wade said.
As to how advisers can begin to connect with DeFi, Charlie Nave, senior analyst at Holon, recommended “testing yourself” by experimenting using small amounts of money.
“First thing I would do is get a small amount of money and buy something like Bitcoin or Ethereum and test out how it works, so you can have that conversation with your clients. I’m not talking a lot of money, just enough money which is an education process for you,” Mr Nave said.
“It can enhance what advisers do,” Mr Nave added, but urged caution.
“There is a lot of volatility out there in the market, so I’d do my homework and look at what’s the network that I trust, where is the robustness.”
Also addressing advisers at the Adviser Innovation Summit, Holley Nethercote managing partner, Paul Derham, said clients have been regularly asking how they could invest in these products.
“Try things out but be very careful. Watch YouTube videos and participate in industry forums. Don’t do something you don’t understand,” he said.
To hear more about DeFi, join us at the Adviser Innovation Summit in Sydney on 8 June.
Click here for more information.
Word to wise – please consider carefully what you do with Defi. It is still the wild west out there, and there is a lot of ways to lose your or your clients’ money. Carefully consider how staking is paid for on chain, typically token inflation is higher than the staking rate available. There are some really interesting protocols (Alchemix, AAVE, and so on) but tread carefully. Its currently ETH L2 season so there is opportunity as well.
I think a client taking self custody in an appropriate way, with a seasoned chain with the right metrics, and staking that is pretty straight forward but after that, there be dragons.
I hope financial advisers don’t succumb to the crypto currency con just as the speculators wake up to it.