Crypto Hedge Fund Seeking $50 Million for Buying DeFi Tokens
Panxora, the cryptocurrency money manager, is seeking to raise approximately $50 million for a new hedge fund with the aim of buying digital tokens associated with the rapidly growing decentralized finance (DeFi) sector. This particular segment of the blockchain industry comprises of automated trading and lending platforms that are designed to eventually replace Wall Street firms and banks. However, in an indication of just how fickle and fast-moving the digital-asset markets can be, the prices of some of the leading DeFi projects are tumbling just as the new fundraising effort has been launched. These projects include prominent names like Aave and Yearn. Finance.
Gavin Smith, the CEO of Panxora, said that this had the potential of changing the way we do finance. Often referred to as protocols, DeFi projects are mostly built on the Ethereum blockchain and their popularity has soared this year. The ‘yield farming’ craze has fueled their popularity, as it encourages crypto traders to put digital assets into the lending and trading systems in search of higher interest rates, fast gains, and token rewards. Stablecoins, which are dollar-linked tokens, are known to get annualized rates of about 20% through Yearn. Finance as opposed to a savings account in the largest U.S. Bank, JPMorgan Chase, which gives 0.01%.
According to DeFi Pulse, the collateral that’s locked into these projects increased to $13 billion earlier this month, which is a 20 times increase since the beginning of the year. Big cryptocurrency exchanges, such as Coinbase and Binance, have rushed to take advantage of this trend. They have listed DeFi tokens and have acknowledged that an increasing share of market volumes may eventually move to decentralized trading platforms. However, the trend seems to have reversed in the past week alone, as the total collateral in the system went down to $9.5 billion.
While prices for the largest cryptocurrency, Bitcoin (BTC), and Ethereum blockchain’s native token known as ether (ETH) tumbled, the DeFi-affiliated tokens saw an even harder fall. A decentralized lender, Aave saw a 12% decline in its LEND token in the seven days through Tuesday. The OMG tokens by OMG plummeted by a whopping 54% whereas there was a 29% decline in the YFI tokens by Yearn. Finance. According to analysts, it was nothing less than a bloodbath. However, they did say that it is likely that DeFi systems could grow over the long-term, even though the short-term risks remain high.
Another problem is that most of the digital tokens are quite new, so giving them a value is extremely difficult. The top-performing digital asset for this year is Chainlink, a blockchain ‘oracle’ that provides decentralized protocols with price feeds. It has a market value of about $1 billion, as it climbed four times in 2020 alone. This value of $1 billion is after a 45% decline it underwent last month. According to some experts, the market will be volatile in its early years and even though it has a lot of potential, people should also be prepared for some setbacks along the way.