- Matt Hougan is the investment director at Bitwise, a $ 1.2 billion crypto asset manager.
- In a webinar on Thursday, he and analyst David Lawant shared their positive argument for decentralized finance.
- They also shared the top ten DeFi assets that have seen tremendous growth and innovation.
- See more stories on the Insider business page.
When you have billionaire investor Mark Cuban talking about DeFi, reminding him of the early days of the internet, and Bank of America publishing a report on DeFi’s radical challenge to modern finance at the same time, you know that a paradigm shift it’s probably on the horizon.
DeFi or decentralized finance largely refers to blockchain-based trading or loan platforms that are automated by software instead of being executed by human employees. DeFi applications are built primarily on the ethereum network. (Ether, the digital token for the ethereum network and the second largest cryptocurrency behind bitcoin, shot above $ 2,000 for the first time on Friday.)
“Finance has been one of the sectors of our economy that has not been disrupted by software and automation, almost every other sector of our economy has been significantly affected by software and automation,” Matt Hougan, chief investment officer at Bitwise Asset Management, said in a statement. webinar on Thursday with Fundstrat Global Advisors.
San Francisco’s Bitwise, which has seen its assets rise from $ 120 million to $ 1.2 billion since its flagship Bitwise 10 Crypto Index Fund began trading on the over-the-counter market in December last year, launched the world’s first DeFi index fund in February.
Hougan believes that although Amazon has reshaped the retail sector with technology, financial activities, such as banks, loans and trades, are still controlled by centuries-old Wall Street institutions. However, more and more crypto investors are seeing this as the last piece of the pie to be eaten by software.
“Much of the cost of today’s traditional financial services is not built into what it actually does,” he said. “It is embedded in that high-priced suit and that trust that is conveyed by traditional human channels and traditional brands.”
On the other hand, DeFi apps were born out of a desire to disintermediate intermediaries on Wall Street using blockchain and software to automate the process, which is an idea that can be applied to almost all verticals in finance, he added.
Breathtaking growth supported by innovation without permission
As a sector, DeFi barely existed, even at the end of June last year, but has since grown to a $ 42 billion market.
“DeFi would rank the 55th largest bank in the US in a $ 42 billion asset category; it happened in just one year and that’s incredible,” said Fundstrat’s leading digital asset strategist, David Grider, in the same webinar.
Hougan, who considers this growth “breathtaking”, said that much of it has to do with the kind of “innovation without permission” that occurs in the DeFi space.
“Imagine if you wanted to build a new product in collaboration with JPMorgan today, you would have to be involved in a multi-year business development process,” he said. “You would have to have the right sponsors, the right venture capital to integrate with them and allow them to provide access to their customers, customer accounts or internal systems so that you can build an incremental advantage over what they” are doing. . “
Most entrepreneurs would hesitate in the face of the long, multi-step process that would probably take years to materialize. In DeFi, however, anyone can see what the biggest players are doing and then build their apps on it, without getting involved in the business development process.
“So it is unleashing these incredible entrepreneurial capabilities,” said Hougan. “There is more news in this space in a week than in the traditional financial sector in a year. And part of that reason is just unlocking innovation without permission that really means something here.”
Dividing the 10 biggest DeFi assets
DeFi’s main assets are now valuing at breakneck speed, but the ecosystem has been quietly building its products in recent years.
An example is Uniswap, the Coinbase of the crypto market. The decentralized exchange started with a $ 100,000 donation from the Ethereum Foundation in 2017, but generated more than $ 100 million in fees in just the past seven days, according to David Lawant, research analyst at Bitwise.
The combination of DeFi’s huge growth and several-year history means that there is a very large universe of investment in space, but the emerging corner of the crypto market is also subject to high technological, regulatory and security risks.
To capture the growth of the risk-aware industry, Bitwise’s
index fund
tracks the 10 largest DeFi assets weighted by market capitalization. As of April 1, these shares in DeFi are shown in the chart below.
Bitwise asset management
Uniswap, SushiSwap (a fork of Uniswap), 0x, and Loopring they are all decentralized exchanges or what Lawant calls “infrastructure games” in the DeFi space.
Aave, creator, and Compound are three of the biggest protocols that focus on the lending space. Synthetix and Uma, on the other hand, deal with derivatives and the issuance of synthetic assets, according to Lawant.
Last, but not least, is Yearn.Finance, which can be thought of as an aggregator or asset manager that “allows its users to seek the best income and the best opportunities,” he said.