Increasing Access to Sophisticated Capital Management

  • Commentary
  • February 2, 2021

Kronos Research is a quantitative digital asset trading firm and is considered one of the larger market makers in the industry. Recently, Kronos announced that it has been incubating and will launch Wootrade, a new trading platform. Wootrade will come with a native token called WOO, which users can stake to receive a reduction in fees on Kronos’ asset management service. This development may potentially lower the barrier of entry to those who want exposure to quantitative strategies but do not have the necessary infrastructure or capital to do so. With this new program, the minimal investment requirement will drop from $1 million to $50,000, opening up opportunities to more investors.

Quantitative trading firms such as Kronos Research and Alameda Research trade billions of dollars a day by volume. Their technical infrastructure and liquidity, as well as their proprietary strategies, give them an unparalleled advantage in seeking alpha in crypto markets. Both trading firms believe that retail investors will embrace quantitative trading strategies should the requisite infrastructure be made more broadly available. 

Alameda Research recently invested in APY.Finance, a yield farming robo-advisor that searches for the best rates and reallocates a user’s capital to optimize returns. It will also allow anyone to propose trading strategies, which, if successful, will allow money to move to those strategies. By serving as an aggregator for trade strategies, APY.Finance hopes to let users take advantage of otherwise sophisticated trading strategies while at the same time minimizing slippage and gas costs for the pool as a whole.

Although many new yield farming strategies have been all the craze recently, it’s important to keep in mind that, unless a user truly understands the underlying technical details and risks of these protocols, the potential risks can outweigh the yield of these protocols’ promise. These strategies introduce new risk factors never before seen in traditional finance and must be accounted for. Some risks include protocol failure (i.e. smart contract bugs), forks (i.e. Sushiswap/Uniswap episode), front-running, liquidity attacks, and governance issues, to name a few. As opportunities for profit increase, so do opportunities for losses. This sector is still young, lacking many of the safety rails that a traditional investor would expect—or even assume. But for those who are well versed in the technical and financial aspects of crypto and fully aware of the risks and opportunities of DeFi, quantitative trading strategies are becoming more distributed than ever before.