Mike Novogratz’s Galaxy Digital Makes DeFi Bet: The ‘Cutting Edge’ of the Crypto Ecosystem
Mike Novogratz, Chief Executive Officer and Founder of Galaxy Digital Investments said all the scams and get-rich-fast schemes in decentralized finance (DeFi) give the cryptocurrency industry a bad name.
“The same way a lot of the ICOs gave crypto a bad name, there are plenty of these coins that became Ponzi-like,” Novogratz said.
“It’s kind of gamifying money. There are still lessons we are going to get out of that, but it’s not great for the ecosystem.”
But what is clear is DeFi “is not a fraud, not something that’s going to come and go.”
During the past few months, DeFi tokens had an amazing run, enticing investors with triple-digital returns through yield farming in a world of zero and negative interest rates. These DeFi tokens also recorded gains of over 100% that, in some cases, went as much as four to five digits.
“It was a frenzy, people got a little bit silly,” Novogratz said. But he added that the mania is now calming down after many DeFi tokens’ prices saw a decline. Although, the total value locked in the sector continues to hit new peaks, $11 billion as per DeFi Pulse.
DeFi aims to decentralize the finance, eliminate intermediaries like banks, and bank the billions of unbanked, although it is still in its early stages. It is an ecosystem that covers exchanges, insurance companies, and lending and borrowing from each other directly.
According to the former hedge fund manager, DeFi apps will eat into the intermediaries’ businesses in a few years, and banks are scared. Already, DEXs are beating popular CEXs in trading volume.
Novogratz is actually putting his money where his mouth is, by becoming a minority shareholder in the DeFi investor ParaFi Capital.
“It’s probably 5% of our capital, roughly, so that’s not a giant bet,” said Novogratz about Galaxy’s entire investment in DeFi.
About three months ago, Galaxy Digital also formed an internal team focused on the DeFi sector and already invested in half a dozen projects that include 1inch.exchange.
As of Aug. 31st, ParaFi had over $100 million in AUM, and now along with Galaxy Digital, they are looking to identify opportunities to co-invest. Founded by Ben Forman, who was previously an executive at private equity firms TPG and KKR, ParaFi has been investing in DeFi since 2018 with investments including Compound, Uniswap, and Aave.
“We want to stay close to the cutting edge,” Novogratz said. “My instinct is, this is a really important part of the ecosystem.”