Crypto firm Valkyrie Investments — which recently launched the second Bitcoin-futures exchange traded fund (ETF), is launching a decentralized finance (DeFi) fund November 22, “off the back of client demand.”
The Valkyrie On-Chain DeFi fund will invest in Ethereum, Avalanche, Solana, Binance Smart Chain, Magic and Fantom, among other protocols, Valkyrie CEO Leah Wald told GOBankingRates. The fund was co-founded by Wes Cowan, head of DeFi at Valkyrie, and Will McDonough, vice chairman at Valkyrie, who was previously Tom Brady’s business manager.
DeFi protocols have been around for several years, but usage began to accelerate in the middle of 2020, according to a Goldman Sachs report sent to GOBankingRates. DeFi, a system grounded in cryptocurrency technology, includes many of the same products and services found in the traditional financial system — including credit and lending, trading and exchange, derivatives, and insurance — but no centralized intermediaries, Goldman Sachs’ co-head of Global FX, Rates & EM Strategy Zach Pandl and FX analyst Isabella Rosenberg wrote in the report.
Growth in the market preceded last year’s surge in the price of Bitcoin, and probably contributed to renewed interest in cryptocurrencies generally. Since then, the DeFi ecosystem has expanded dramatically and total value locked — a measure of the market value of crypto assets deposited in DeFi protocols — has increased to nearly $100 billion today from less than $10 billion in the first half of 2020, according to the report.
More investors are becoming aware of the benefits many protocols provide, from staking and lending to yield farming and more, Wald said, adding that the firm sees “a massive opportunity in this space.”
The growth likely is a product of yield and speculative activity, according to the Goldman Sachs report. “But user adoption may also relate to longer-running trends including digitalization, globalization and declining trust in centralized institutions,” the report noted.
“Overall, the innovations in DeFi show potential for adoption and disruption in existing financial systems. They also demonstrate a compelling use case for blockchains and cryptocurrency technology that should help support market valuations for these assets over time,” according to the report.
Wald explained that they chose the protocols thanks to the firm’s proprietary software it developed to analyze on-chain data.
Asked how this fund is different from competitors’ DeFi funds, Wald explained that Valkyrie is not a passively managed fund “that just holds DeFi tokens and doesn’t actually take advantage of the DeFi on-chain ecosystem.”
“The Valkyrie Onchain DeFi fund, in addition to investing in the DeFi tokens, holds our assets on-chain,” she said. “This allows us to participate in the upside, while gaining additional yield from lending, liquidity pools, farming & staking in the on-chain DeFi ecosystem. We get the appreciation plus the compounded yield generated from on-chain DeFi participation. In addition to investing in DeFi tokens, the fund will hold assets on-chain.”
The fund will be available to accredited investors in the U.S. and the majority of international countries.
In terms of risks associated with the space, Wald says they are the same as any other digital asset strategy. “Protocols can be volatile, but we see that as a positive rather than a disadvantage,” she stated. “Volatility is opportunity.”
Last month, the firm launched the Valkyrie Bitcoin Strategy, which is trading on the Nasdaq exchange under the ticker “BTF.”
Valkyrie’s ETF aims to solely track the value of Chicago Mercantile Exchange (CME) Bitcoin futures, according to Valkyrie. Bitcoin futures, which are agreements to buy or sell an asset in the future at a specific price, are fully regulated in the U.S. on the CME. The goal of the fund — which does not invest directly in Bitcoin — is to track the value of these products in a liquid basket of securities. “By doing so, BTF provides exposure to a wider audience of investors, advisors and more, without the pitfalls and hurdles typically associated with investing directly in crypto assets,” the company said in a statement.
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