3 Reasons Every Professional Investor Should be Allocating Capital to DeFi Now
As a former hedge fund investor, I’m continuously surprised by the opportunities for outsized returns available in DeFi today. The kinds of derivatives and options that would take weeks of back and forth between bankers and lawyers to construct are being made available to the general public through DeFi today.
Below are 3 reasons why I think we will see a large increase in institutional capital in DeFi in 2022.
DeFi yields on stablecoins can be up to 20%
Current savings accounts yield ~0.5%. With Anchor protocol on the terra ecosystem you are able to yield 40X that while holding $USD.
A few startups plan to or have already launched offerings capitalizing on these yields:
Beema Finance — Uses Anchor Protocol to offer 15% yield and a debit card!
Seashell — 10% yields backed by DeFi — capital raised by heavy hitters like Mark Cuban and
Blockfi — The OG — ~8% yields backed by loans on stables and top crypto currencie
Double dip on your investments with minimal fees
Until recently only high net worth individuals had the ability to borrow against their myriad investments at super low rates.
For instance Elon Musk lives on the money he loans at rates of 2–3% while his true assets are invested in Tesla, SpaceX and DOGE! He gets a much higher return on these assets than the 2–3% he pays for his day to day purchases.
Now anyone invested in crypto is able to provide their staked interest-bearing assets as collateral for cash (or further investment!). Here’s an example on how this might work:
- Buy bonded Ethereum (bETH) and start earning ~5% on your Ethereum
- Provide your bETH to Anchor Protocol to get ~45% of it’s value in UST for your collateral at a rate of ~0%
- Now you can resubmit that cash into Anchor Protocol and yield another 20% — eventually repaying your original loan (or take some out to spend!)
As you can see the above strategy allows you to yield 14% on your ETH holdings.
Stack your Investments further
Advanced investment protocols like Mirror and Abracadabra allow you to take the above strategy much further. For instance, once earning 20% at Anchor you could take your staked UST at Anchor and provide as collateral at Mirror to borrow assets, such as the S&P 500 (which on average yields about 7% over the last 100 yrs). This would juice your returns even further — on their way to 30%+.
My favorite option available on Mirror is Alibaba — one of the most loved value investor stocks today.
A bright future for decentralized options
Developers across the top ecosystems like Solana, Fantom, and Terra continue to innovate with new options strategies that offer ways to compound your investments. I’ve only touched the surface above. The protocols below offer even more options:
Friktion — Options strategies on Solana for covered calls and puts
GMX -Perpetual futures trading at 30X leverage with very low fees
Mirror — A decentralized protocol that offers derivatives of real-world assets
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