Cryptocurrency manager Panxora is trying to raise up to $ 50 million for a new hedge fund to purchase digital tokens associated with the fast-growing decentralized finance (DeFi) sector.
DeFi is a segment of the blockchain industry consisting of automated lending and trading platforms that aim to replace banks and businesses. "All of this has the potential to really change the way finance is done," Panxora CEO Gavin Smith said in an interview.
DeFi volatility
DeFi projects, often referred to as protocols and mostly built on the Ethereum blockchain, have increased in popularity this year. This process has been fueled by the “yield farming” craze which encourages cryptocurrency traders to insert digital assets into trading and lending systems in search of high interest rates, rewards and quick earnings.
Dollar-linked tokens known as stablecoins can achieve annualized rates of up to 20% via Yearn.Finance, versus 0,01% for a savings account with JPMorgan Chase, the largest US bank.
Total frozen value in DeFi projects jumped to $ 13 billion earlier this month, according to DeFi Pulse, a 20-fold increase since the beginning of the year. Large cryptocurrency exchanges such as Binance and Coinbase were quick to go along with the trend, listing DeFi tokens while acknowledging that an increasing share of market volumes could eventually migrate to decentralized trading platforms.
But just in the last week, the trend has reversed; the total value in the system dropped to about $ 9,5 billion. And as prices plummeted for bitcoin (BTC) and ether (ETH), DeFi-affiliated tokens fell even more. "DeFi casino summer may be drawing to a close," analysts from Messari, a cryptocurrency data company, wrote in their daily newsletter on Tuesday.
Panxora Hedge Fund
Cryptocurrency analysts say DeFi systems are likely to grow over the long term, although short-term risks are high and many of the digital tokens are so new that they can be difficult or even impossible to evaluate using analytics tools similar to those. of traditional finance.
Chainlink, a so-called blockchain "oracle" that provides price feeds to decentralized protocols, is the best performing digital asset this year among those with a market value of at least $ 1 billion, climbing more than four times in 2020.
And that's despite a 45% drop this month alone. "We expect the market to be volatile in the first few years," Smith said. "Even if there is great potential, there will inevitably be setbacks along the way."
Panxora's new hedge fund, headquartered in the Cayman Islands and scheduled to begin trading on November 2, will mainly purchase tokens listed on large centralized cryptocurrency exchanges rather than decentralized and automated exchanges such as those assembled by DeFi developers. “We have to offer it like a conventional hedge fund that invests in these protocols, ”Smith said.
