As the world has moved toward digital for just about everything, it was only a matter of time before financial innovations sprang from the tech sector. While things like online banking have been standard for years, alternative financial solutions like cryptocurrencies have made huge leaps forward to become both valuable investments and ways to store and spend wealth.
The decentralization movement plays a large role in crypto. This movement has a name – decentralized finance or DeFi. When someone says they have a DeFi portfolio, they usually mean that they have a portfolio that is made up of decentralized financial assets. Oftentimes, these portfolios are put together by brokerages. Each brokerage's DeFi portfolio offerings can be different, and they may also be rebalanced on an ongoing basis.
How Trackers Benefit Investors
A DeFi tracker can be used in conjunction with portfolio services to check the performance of assets across various exchanges, blockchains and wallets. The use of a tracker is ideal for investors who want to ensure their portfolio is performing as expected. This can also alert investors to make changes to their portfolios if something isn’t right.
A brokerage will usually be the entity to contact to alter a portfolio, but some portfolios are solely managed by a broker. This means that individual cryptocurrencies or other decentralized assets can’t be changed by the investor.
The Tax Implications of Holding a DeFi Portfolio
Whenever you conduct any type of financial activity in the United States, you can bet the IRS will want a piece of the action. Decentralized finance taxes are a hot topic right now since more and more people have been investing in cryptocurrency in recent years. You will still likely be liable for decentralized finance taxes if you’ve made any type of capital gains on a DeFi investment, but only a tax specialist can guide your specific situation.
Disclaimer: The above is not investing advice. Consult with a financial professional to discuss whether a DeFi portfolio makes sense for you.
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