DeFi Social and Copy Trading — FNDZ

FNDZ Team
FNDZ Team
Aug 13 · 6 min read

FNDZ is built on decentralised finance (DeFi) infrastructure to provide a transparent, secure, and easy-to-use copy trading experience. In this post, we’ll take a deeper look at the concepts of copy- and social trading, their benefits, the drawback of current providers, and the reasons why we believe FNDZ will be the best DeFi copy trading platform.

Read more about how FNDZ works here and head on over to our website and take a look at our whitepaper

Social trading

Social media websites like Facebook, Twitter, and Instagram are ideal places to share information with any type of social circle. Typically, the kind of sharing that goes on has a social focus — baby photos, selfies, event invitations, and so on. By contrast, social trading websites such as eToro serve as forums specifically for sharing investment-related information. In both cases, individuals create profiles in which they share distinguishing details about themselves and compete for attention and visibility. Users obtain information and context from the thoughts and actions of others in their social circle.

In the aftermath of the 2008 financial crisis, many people lost faith in traditional financial institutions and began turning to social media channels such as Twitter to share and crowdsource investment-related advice. This trend also fuelled the growth of pure-play social trading sites focusing exclusively on trading and investment-related information. In return for a fee, these websites allowed users to track the performance of other traders and their strategies. Some of them also featured a copy trading option.

Copy-trading

If social trading is the use of social information to facilitate trading and investment, copy trading is a special type of social trading. As the name suggests, copy trading describes a situation in which a (typically more experienced) investor’s trades are automatically duplicated by other (typically less experienced) investors.

The idea is simple. You might know someone whom you suspect is a better trader than yourself. This person probably spends more time reading and researching the topic than you do. They may have more experience, better connections, and a greater understanding of the relevant markets. If you’ve ever wished that you could match their performance without all that hassle, copy trading is for you. It allows you to make use of algorithms that ensure that whenever the targeted trader makes a move, that same move (adjusted for scale) is automatically copied and executed on your behalf.

Or, maybe you know that you’re the best trader in your social circle. In that case, you’ve probably experienced — more than once — being asked for trading advice or even help in physically managing your friends’ and family members’ wallets and investment strategies. This can very quickly get out of hand and become a source of stress if you agree to help more than a few individuals at any one time. If this sounds familiar to you, a good copy trading platform is a godsend allowing you to simply tell your people to sign up and copy your strategy automatically.

The competitive landscape: Disrupted by DeFi

In a networked world of increasing digital and financial sophistication, copy trading platforms have obvious and great potential. Indeed, the first generation of social trading platforms — essentially centralized brokerage platforms such as eToro, Ayondo, and Zulutrade — have enjoyed more than a decade of rapid growth. Trades initiated automatically through copy trading makeup roughly two-thirds of all transactions on these platforms (1). Academic research has shown that users copying the best traders can significantly outperform the market (2, 3).

Why then do we stress the potential of copy trading, if large-scale providers already exist? Because, unfortunately, there are several issues with the terms and conditions with which these providers operate. Instead of actually owning the assets upon which they base their trades, users of these sites are issued derivatives known as contracts-for-difference (CFDs): these are legal agreements to swap the returns on an underlying stock with the fees charged by the platforms. They are not the assets themselves. This means that if anything should happen to the platforms, investors cannot simply move their assets away — the assets are owned by the platforms. Worse, there are all kinds of hidden costs and fee structures. A casual glance at third-party guides promising to “unveil hidden fee structures” reveals conversion fees, transfer fees, withdrawal fees, overnight rollover fees, deposit fees, non-trading fees, commission-related charges, variable spread costs, and more. For these and other reasons, it is no surprise that the majority of user ratings of, for example, eToro, are 1-star ‘bad’ reviews (4), an indicator of widespread customer dissatisfaction.

Enter DeFi.

DeFi, or decentralised finance, is a financial infrastructure made up of blockchain-powered smart contracts and protocols which collectively carry out the same functions traditionally handled by brokers, bankers, and financiers. FNDZ uses these tools to provide a fully transparent, low-cost, highly efficient, and user-friendly copy trading platform. Our audited smart contracts carry out all functions according to open, community-influenced protocols. There are many fewer types of fees and costs and all of them are readily visible in the smart contract code.

FNDZ users simply create or invest in vaults, which contain a specific trading strategy. Vault operators will distinguish themselves by key factors such as level of risk, growth- or value-based investment, and in any other way that they wish to express themselves and advance their investment goals. Other traders piggyback on the experience of vault operators by simply and easily copying their trades. Trades can be copied with no more effort than connecting a MetaMask wallet to a vault and clicking ‘copy.’ Traders operating FNDZ strategies personally carry out their chosen trades and methodologies. Smart contracts then immediately and effortlessly carry out the associated functions, such as the handling of management or performance fees. There are no hidden fees or costs, and the assets are deposited directly into the smart contract vault operated by the FNDZ trader for them to trade and control. However, only the person copying a strategy by depositing funds into it has the authority to withdraw those funds.

We hope this primer on social and copy trading basics has gotten you excited about plugging the market gap for DeFi copy trading. Whether you are an experienced trader looking forward to opening your very first FNDZ vault, a prospective copier soon to reap the rewards of the best traders, an investor looking to get in early on the next big thing in DeFi, or simply interested in the FNDZ concept — stay tuned and watch this space for more information as we continue to develop the project and work around the clock to ensure a smooth IDO launch this summer.

STAY TUNED:

References

1. M. Pelster, A. Hofmann, About the fear of reputational loss: Social trading and the disposition effect. Journal of Banking & Finance 94, 75–88 (2018).

2. J. Gottschlich, O. Hinz, A decision support system for stock investment recommendations using collective wisdom. Decision support systems 59, 52–62 (2014).

3. A. Oehler, M. Horn, S. Wendt, Benefits from social trading? Empirical evidence for certificates on wikifolios. International Review of Financial Analysis 46, 202–210 (2016).

4. Trustpilot. (2021), vol. 2021.

FNDZ

Copy trading made easy #DeFi

FNDZ

FNDZ is the social trading platform making copy trading simple by connecting retail investors with an ecosystem of highly experienced traders using a decentralized finance platform (DeFi) based on transparency and smart contracts.

FNDZ Team

Written by

FNDZ Team

Copy trading made easy #DeFi

FNDZ

FNDZ is the social trading platform making copy trading simple by connecting retail investors with an ecosystem of highly experienced traders using a decentralized finance platform (DeFi) based on transparency and smart contracts.