DeFi Pushes Crypto Hedge Funds to ‘Exceptionally’ Outperform Traditional Counterparts

  • Cryptocurrency hedge funds have witnessed a surge in returns over the past year with the rise in the decentralized finance (DeFi) ecosystem, Reuters reported on Thursday.
  • These crypto hedge funds, who also took up Bitcoin positions, outperformed their traditional hedge fund counterparts, as the top crypto coin recorded over 180% increase in 2020.

According to statistics shared in the Reuters article, non-crypto hedge funds, such as BarclayHedge, an alternative investments firm, recorded a 1.70% increase in the first nine months of 2020. However, this is very modest considering the crypto-focused hedge funds, e.g., Vision Hill Group recorded 129% returns across 2020.

The CEO and founder of Vision Hill Group, Scott Army, attributes the explosive growth in returns to the growing DeFi market. The decentralized finance ecosystem takes over traditional banking roles, facilitating lending and borrowing between parties without a bank or financial institution.

One of the biggest institutional investors in the DeFi market, Framework Ventures, a $100 million venture capital firm, sets its sights on the DeFi market exploding in the coming months. Praising the growth of DeFi platforms as Uniswap DEX, which has time and again surpassed centralized exchanges daily volume, Michael Anderson, co-founder of Framework Ventures, said,

“Users are trying to vote with their dollars in terms of how they view the capabilities of DeFi.”

Another crypto hedge fund enjoying the rising crypto market is Off the Chain Capital, who helped Mt. Gox users affected by the 2014 hack to discount their bitcoin claims. The firm recorded 94% in returns across 2020 and has been a top performer since launch in 2016, averaging 112% in returns for the past four years.

At the peak of DeFi euphoria, the ecosystem embraced yield farming and liquidity pools through protocols such as Uniswap, Compound, and Aave, causing an upsurge in the capital deposited to these platforms. According to DeFi Pulse data, the total value locked (TVL) in DeFi protocols has skyrocketed from $657.6 million to over $12 billion in October – currently at $10.8 billion.

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