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The SmartFunds Approach
Software is eating the world and the fund service stack isn't immune.
So what is the anatomy of a web3-native fund?
A Web3 native fund:
- Manages an on-chain whitelist of accredited investors who can access the fund
- Accepts investments in stablecoins directly to a digital wallet (hardware wallet, multi-sig, Metamask etc), the fund’s general ledger
- Capital is kept on-chain to maximize investment access and capital efficiency
- Issues non-transferable ERC-20s representing fund ownership without enabling a non-compliant market
- Automates management of the cap table as shares are tokenized
- Invests in permissioned equity rounds using stablecoins and/or in liquid DeFi tokens
- Automates NAV calculation using APIs to aggregate liquid and illiquid asset values at the interval of your choosing
- With tokenized shares and automated NAV calculations, automates the tracking of management and performance fees.
- Redeems investors after lockup on chain using USDC
- Offers a real-time investor portal to LPs to track their investments
- Inputs immutable trade and fund administration records to generate tax and investor reporting
Tokenized ownership will be as ubiquitous as communities on the internet, creating opportunity for solo capitalists to specialize in niche investment sectors.
As funds are unbundled and become smaller, nimble managers, lacking the luxury of a large back office department, will require a business-in-a-box service.
This is the future we are building for at SmartFunds, an operating system for the new web3 active manager.
Other protocols for active asset management in the market today address these challenges by severely restricting what a fund manager can do. We believe this runs counter to the spirit of DeFi and overly constrains how a fund manager can deploy capital. These solutions end up competing more with liquid ETFs as active managers are limited to a small number of highly liquid ERC-20s and a small number of AMM and lending pools. A transfer of custody is necessary to open up active managers to a more expansive asset universe. SmartFunds is a protocol that takes the opposite approach, which is to allow asset managers to participate in almost anything in DeFi.
To bridge the gap between what can and cannot be decentralized, SmartFunds has broken down the active fund management problem to its core functions and is decentralizing each function individually, to the extent possible. And where it's not possible to decentralize, SmartFunds enables governance to act as oversight.
By addressing the core components of fund management individually, each aspect can be progressively decentralized or automated over time, as DeFi infrastructure matures to sufficiently address all of the functionality required to actively manage capital.
SmartFunds addresses these challenges by using smart contracts to handle fund administration and governance to handle oversight.