Active Management

What Is Active Management?

Active management refers to an investment approach where assets are selected, positions are adjusted, and timing is managed proactively with the goal of outperforming a chosen “benchmark.” The benchmark serves as a reference point—such as a major index or a predefined return target.

In the crypto market, active management can take several forms: active trading, using strategy bots for automated buying and selling, dynamically managing lending and liquidity positions in DeFi, or rebalancing via strategy vaults according to set rules. The term “alpha” describes the excess return generated above the benchmark.

Why Is Active Management Needed in Crypto Markets?

Active management is often considered in crypto due to rapid price fluctuations, fragmented information, and frequent on-chain opportunities. Being proactive allows investors to better capture events and structural changes.

Examples include token unlocks, protocol upgrades, fee adjustments, and liquidity migration—all of which impact prices and yields. Active management seeks to track these changes and adjust positions accordingly, aiming for improved results within a controlled risk framework. However, it does not guarantee returns.

How Does Active Management Work?

Active management operates on a continuous loop of “research—decision—execution—review.” Investors first define their benchmark and objectives, then make choices based on information, execute according to rules, and evaluate outcomes.

The research stage includes analysis of fundamentals and on-chain data; decision-making involves setting buy/sell levels and position sizing; execution takes into account transaction fees and slippage (the difference between expected and actual trade price); the review stage checks whether the strategy actually outperformed the benchmark and optimizes future approaches.

How Does Active Management Operate in Web3?

In Web3, active management relies on transparent on-chain data and programmable transactions. Strategies can be triggered by wallet addresses, smart contracts, fund flows, or governance events.

Within DeFi, active management includes dynamic adjustments to lending rates, pool switching, market making ratios, and staking terms. Strategy vaults encode rules into smart contracts, enabling automated rebalancing at preset thresholds. Smart contracts serve as self-executing “strategy manuals,” but are subject to contract vulnerability risks.

How Can Individuals Use Active Management?

Individual investors can turn active management into a systematic process: start by setting a benchmark, choose tools and rules, then consistently review performance and manage risk.

Step 1: Define your benchmark and objectives. This could be a major index you plan to hold long-term or a target annualized return range to measure alpha.

Step 2: Choose tools and rules. On Gate, you can use grid bots for range-bound trading, set up recurring buys for dollar-cost averaging, follow others' strategies via copy trading, and apply stop-loss/take-profit limits plus max drawdown for each tool.

Step 3: Track and review. Weekly or monthly, compare results versus your benchmark, log fees and slippage, and reduce positions or pause strategies if needed. Keep review records separately to support ongoing improvement.

How Does Active Management Differ from Passive Management?

Active management emphasizes selection and adjustment in pursuit of outperforming a reference; passive management focuses on tracking and holding assets closely aligned with the benchmark. The objectives and effort required differ.

Passive management typically incurs lower costs and fewer steps—ideal for those not wishing to monitor markets frequently. Active management demands ongoing decision-making and monitoring, potentially increasing both returns and volatility/costs. Many investors combine both: core positions are managed passively, while satellite allocations are handled actively.

What Are the Costs and Risks of Active Management?

Explicit costs of active management include transaction fees and potential management fees. Implicit costs involve slippage, overtrading bias, and misjudgments due to data delays.

Risks include major market swings, strategy failure, platform risk, and smart contract vulnerabilities. Smart contract risk means loss of assets due to flaws or security issues in contract logic. To protect funds, diversify across platforms, set risk thresholds, and keep emergency cash reserves.

Common Strategies in Active Management

Trend-following active management: Adjust positions when price crosses your chosen moving average or range threshold—aiming to ride momentum. This relies on clear entry/exit rules.

Grid-based active management: Use grid bots on Gate to divide price into multiple grids; buy/sell as price hits each grid for range-bound profits. Suited for sideways or choppy markets—requires careful setting of price bands and grid density.

Market-neutral active management: Reduce directional exposure via long-short hedging—for example, pairing spot holdings with inverse tools to capture arbitrage opportunities. Focuses on risk control and cost management.

Yield-driven active management: In DeFi market making or lending, shift allocations based on fee/incentive changes to boost annualized yield. Requires constant monitoring of pool fees and lock-up periods—and evaluation of contract risk.

How Will Active Management Trends Evolve by 2025?

By 2025, active management in crypto is becoming more automated and transparent. Strategy bots and vaults increasingly put rules on-chain for easier auditing and review; AI is playing a growing role in research and risk controls.

Platform tools are being enhanced—offering trigger conditions, portfolio views, and risk dashboards—with compliance and risk disclosures receiving greater attention. Individual investors are more likely to blend passive core holdings with active satellite positions to reduce overall volatility.

Key Takeaways for Active Management

The core of active management is establishing a measurable benchmark, then using systematic research and execution to pursue alpha, while factoring in costs, slippage, and contract risk. For everyday investors, turning active management into a process—supported by platform tools—is more reliable than relying solely on intuition. Combining passive with active approaches, maintaining regular reviews, and diversifying risk are key to sustainable active management in crypto markets.

FAQ

How Do Actively Managed Funds Differ from Regular Funds?

Actively managed funds have professional managers who proactively adjust the portfolio based on market changes with the goal of beating average market returns. Regular (passive) funds simply track an index by buying and holding assets. Active management comes with higher fees but often performs better during bear markets because managers can respond quickly to risks.

Should I Choose Active or Passive Investment Products?

It depends on your investment style and market conditions. If you trust your own—or your manager’s—judgment and have time to watch markets, active products may suit you. If you prefer long-term holding without frequent intervention, passive management is more hands-off. In highly volatile crypto markets, active management may help protect assets more effectively.

How Do Fund Managers Select Investments for Actively Managed Products?

Fund managers analyze project fundamentals, technical indicators, market sentiment, and other factors to pick assets they believe are undervalued or have growth potential. They periodically reassess the portfolio—buying or selling at opportune times—relying on professional expertise. Strategies can vary greatly among managers.

How Are Fees Structured for Actively Managed Products?

Active funds typically charge both “management fees + performance fees.” The management fee is a fixed annual charge (usually 0.5%-2%) covering manager compensation and operational costs; the performance fee is a share of any returns above the benchmark (typically 10%-20%). Total costs are higher than passive funds—making strong performance necessary to justify them.

Can Active Management Really Make Money in Crypto Markets?

It can—but there’s no guarantee. Skilled managers have generated excess returns through active strategies in volatile markets. Success requires deep industry knowledge, quick response times, and strong risk controls. When choosing an active product, check the manager’s track record and team expertise—don’t rely solely on promises.