Asset Management on Housecat
Housecat is the decentralized asset management platform, allowing individuals to share ideas and invest together through code. Similar to traditional finance, our platform allows the practice of group investing, without having to trust someone to custody your funds. Instead, the money sits in a smart contract and relies on a network of trade executors.
In today’s post, we’ll dive into the concept of asset management, and how it’s practiced in the Housecat marketplace. As a reminder, Housecat is launching in August - we invite you to be the first to participate as a portfolio creator or subscriber! All you have to do is subscribe to our waitlist at https://housecat.com/ or reach out to us to be one of the first portfolio creators on the platform.
- Housecat introduces a non-custodial, decentralized asset management protocol
- The marketplace consists of portfolio creators (akin to GPs), and subscribers (akin to LPs).
- LPs deposit their funds in a smart contract pool and receive LP tokens, similar to how Uniswap manages liquidity pools.
- Portfolio creators set management and performance fees as they wish, Housecat takes a 25% cut of that.
- Investors on the platform pay a 0.25% rebalancing fee on top of all the fees charged by the portfolio creator/manager.
- Learn more about how Housecat works here.
Introduction to asset management
Managing other people’s money is a common practice in finance. It allows professionals to get paid for investing on behalf of those without the knowledge, time or wish to invest on their own. This practice makes sense for both, as the fee structure they set creates incentive alignment.
Typically, asset managers raise a fund with money from one or many investors, which together makes a larger capital pool that is investable in various areas. That pool can be locked for a specific amount of time, or open for withdrawals at any time. The depositors of capital are called Limited Partners (LPs), while the assets’ manager is called a General Partner (GP).
GPs charge LPs two sets of fees, that compensate them for both their time and performance:
Management fee: is charged on a regular basis, typically % per year - and compensates the GP for the day-to-day operations and time they invest in managing capital. A typical management fee in Venture Capital for example, is 2% per year.
Performance fee (carried interest): Compensates the GP for generating positive returns for the LP. Typically, an LP will pay the GP a portion of the returns they receive, upon going above a certain return threshold they set (or not). This fee makes both sides aligned - as they share the similar goal of generating the best results possible. In case the GP didn’t meet the return threshold, they will not get paid. In Venture Capital and also other areas such as Hedge Funds, GPs will get around 20% of the returns on capital as carried interest.
Housecat is built on a similar fee design, allowing portfolio creators (i.e GPs) and investors (i.e LPs) to connect through the marketplace and invest in assets through code. Housecat still differs from traditional asset management on a few levels:
- Housecat allows anyone to become a portfolio creator/manager, whether they’re a known figure in the industry, or an anonymous internet user. There’s no requirement to have a specific background to join the platform.
- There are no deposit requirements to start investing in Housecat. Anyone can subscribe to a portfolio with as little as 1 MATIC in their wallet.
- Housecat and portfolio creators do not manage anyone’s money. Rather, they allow the replication of their trades through a smart contract pool. Instead of directly managing assets, GPs attract people to follow their investing strategy and get rewarded through a similar incentive model to traditional asset management.
- Assets on the platform are kept in a neutral smart contract pool - separating the assets from both the GPs and the LPs. That allows people to get a liquid token of their share in the pool, tradable as an asset on its own.
- LPs can withdraw their money at any time, there are no lockups or redemption periods. GPs can continue to invest regardless of their pool’s size.
More on the practice of traditional asset management can be found here.
Participants in the Housecat marketplace
Housecat connects between two sides of the marketplace and enables the technology stack for asset mirroring - which allows wallets to copy each other’s behavior and execute the exact same trades. Both sides share a symbiotic relationship that is similar to how asset management works in traditional financial markets.
Create and maintain a specific investing strategy through a wallet they control. They can buy and sell any whitelisted asset on Housecat, and allow other investors to follow their strategy. They can choose to set both management and performance fees on their own, of which Housecat takes a 25% cut.
The management and carried interest fees accrue automatically - the beneficiaries receive the fees through a settlement function that’s triggered in the pool contract. This function can be triggered manually by anyone at any time, but it is also forced to trigger whenever the pool receives deposits or withdrawals, or when the fee settings are changed.
The Management Fee is charged as a percentage of the pool total value and accrues continuously. The Performance Fee is a percentage of the profits that the pool and its followers gain. It can be collected when the total value of the pool has increased compared to the previous settlement. When the performance fee is settled, the value of the pool at that time will be the next high water mark where the pool value will be compared thereafter. More about the fee structure can be found here.
Follow an investment strategy and receive LP tokens representing their share in that specific pool. Any investor can choose to redeem (and burn) their LP tokens to take funds out of the pool at any time. The tokens investors deposit in the portfolio pool are then managed by a smart contract and ‘Executors’ - who are responsible for re-balancing the positions in the pool according to the actions performed by the portfolio manager (i.e their wallet). Executors help the protocol exist by rebalancing pools on Housecat and are rewarded with 0.25% of the pool size for any rebalance trade they make. That amount is charged automatically by Housecat, as part of the fee schedule.
Autopilot investing for all
We believe that asset management can migrate to a more sovereign system - that upgrades the experience for all parties. With Housecat, anyone with a crypto wallet can outsource their investing strategy to industry experts of all kinds, who share ideas and a similar goal of capital appreciation.
We designed Housecat to be on autopilot mode for investors from day one. That means investors in the marketplace can simply deposit MATIC into a Housecat pool and forget about any technicalities related to all the details described above (which are still essential to understand). Housecat’s code and network of executors allow the protocol to run automatically and provide an automated investing experience to its participants. Housecat will support a specific list of tokens at launch (which we plan to extend in the future) - the list can already be found here.
The countdown begins
Housecat is excited to introduce a new method of asset management and social investing through the internet of money. We’re still preparing the ground for our upcoming launch next month but would love to have you go through our newly published protocol documentation - made for anyone interested in learning more about the mechanics we started laying out in this blog post.
We’ll encourage anyone wanting to use Housecat to go through this page to understand how the protocol works, to get a decent understanding of how assets are managed on the platform, and why it works in such a particular way. We welcome any feedback, questions, or comments on the documentation - that can help us set the stage for launch and clarify any missing details.
August is approaching - we couldn’t be more excited to launch Housecat on the Polygon Mainnet, and welcome any investors to participate with as little as 1 MATIC. As always, we invite you to join the Housecat community on Discord and Twitter to discuss this blog post and have your questions answered by the team.