Centralized crypto exchanges remain popular because they let traders and investors buy cryptocurrencies through cards or bank transfers using fiat money. However, their nature has been known to compromise user autonomy. Some DeFi platforms are moving away from central governance frameworks that outline the terms of strategic and operational priorities. Basket Manager Combine, introduced by the decentralized investment platform Mosaic Alpha, exemplifies an investment approach that deviates from the widely recognized standard.
It is a three-month competition for asset managers, crypto influencers, and seasoned investors who create and manage a DeFi product called “token baskets” to earn rewards from a prize pool exceeding $30,000. The competition will run until June 30, 2025. Token baskets combine several cryptocurrencies into a single, tradable portfolio. Creators leverage individual investment strategies, and investors can follow, track, and share portfolios in real time.
The user subscribes to an asset manager’s strategy by investing in a token basket. While this is not unlike copy trading on centralized investment platforms, there is a notable difference: the shared incentive model. Basket managers earn performance-based fees, so their success partially depends on their followers’ success. Another difference is that, unlike centralized platforms, Mosaic Alpha ensures full asset ownership.
Only quality assets apply
Types of baskets include Blue Crypto (Bitcoin, Ethereum, and other leading assets), Underrated, Circle, Future of Internet, etc. Most are classified as low to moderate risk. To make a purchase, you connect a wallet and follow the corresponding instructions. Mosaic Alpha only allows carefully selected, verified, high-quality tokens in its baskets. In contrast to traditional asset management, the baskets are transparent, non-custodial, and fully blockchain-based. The best-performing managers receive rewards in Kodexa (KDX), the platform’s official utility token.
This innovative investment concept departs from traditional strategies like hodling: buying and holding cryptocurrency long-term. The profit entirely depends on the asset’s value increasing over time. Hodling ignores passive income opportunities and goes against a prominent DeFi rule: don’t leave any assets idle.
Centralization concerns with familiar investment strategies remain
Strategies like staking, yield farming, lending, and borrowing are very well-known. Staking enables the cryptocurrency holder to earn a passive income while holding on to their assets. It is native to proof-of-stake (PoS) blockchains, which require holders to lock their assets to help secure the network while generating new blocks and validating transactions. The longer the staking term, the more the holder earns, similar to a bank deposit. In PoS networks, staking rewards are dominated by the wealthiest token holders, resulting in centralization. There is an increased risk of economic imbalance.
Yield farming is carried out using a specialized lending and borrowing protocol, where token holders deposit their cryptocurrency into liquidity pools to earn interest. It’s the most lucrative and riskiest way of earning in DeFi. Volatile assets cannot escape impermanent loss and other potential risks. Some platforms exert undue influence, raising questions about true decentralization.
The risk of dubious loan recipients
Like TradFi, DeFi allows users to borrow or lend money. One advantage over TradFi is the absence of credit checks banks perform to approve loans. Smart contracts set rates based on the cryptocurrency in a liquidity pool. Lenders who provide cryptocurrency to a pool can earn interest on their assets. DeFi protocols, which are specialized crypto trading platforms, issue these loans. They tend to be over-collateralized, meaning the borrower pledges cryptocurrency that’s worth more than the loan.
The user agreement stipulates assets will be held a certain way, but the platform might hold or use them in quite another. Such cases are far from unheard of. Voyager’s now infamous bankruptcy resulted from an unjustifiable business model. Essentially, the company loaned out client deposits to a very small number of borrowers, the largest being Three Arrows Capital, and the collateral was far from sufficient. The clients had not underwritten the loan recipients. The lender also hadn’t been open about the exact risks involved. The clients weren’t aware that their cryptocurrency would be considered the bankrupt company’s property in an insolvency procedure.
Addressing the “illusion” of decentralization
All of these factors lead DeFi critics to hone in on the “illusion” of decentralization, with theoretically decentralized portfolios following preset investment strategies. An example is automatically shifting aggregated investor funds across crypto lending platforms to gain the highest possible yields. Certain features of DeFi platforms currently give large holders the authority to make most decisions affecting the platform.
The compensation provided to transaction validators must be sufficient to encourage them to participate without perpetrating fraud. PoS blockchains enable validators to stake more cryptocurrency to enhance their chance of “winning” the next block and, respectively, being compensated for it. This setup results in concentration because most associated operational costs are fixed. Many blockchains allocate a significant share of their initial crypto to insiders, exacerbating centralization concerns.
Investment tools like token baskets mitigate these concerns as they are based on a shared incentive model, and smart contracts operate this fully decentralized system. Users of Mosaic Alpha can choose a product that fits their risk appetite and financial goals. They trust no third party with their funds, only a transparent and verified code.
Much has been said about DeFi security risks. Mosaic Alpha has joined the Polkadot ecosystem to ensure seamless asset transfers and transactions across platforms and integrated with the Substrate framework, which provides enhanced flexibility and security based on user governance. Substrate offers a more secure framework for blockchain development than Solidity because it is built in Rust, a memory-safe language that helps prevent buffer overflows, reentrancy attacks, and other common problems.
