DeFi Investing Just Got More Crowded
On Monday 19 July 2021, Grayscale became the latest to offer a Decentralized Finance (DeFi) investment product, the Grayscale DeFi Fund. This fund results from a partnership with CoinDesk, the provider of the CoinDesk DeFi index and a leader in crypto-related news. Through this new offering, Grayscale appears to be responding to market demand for diversified exposure to a fast-growing corner of the crypto market. This offering also joins a space that already offers several vehicles with similar exposures — chief among them is Index Coop DAO (Decentralized Autonomous Organization)’s DeFi Pulse Index — DPI.
Below, please find a comparison of the holdings of these two instruments as of 19 July 2021:
While both products provide diversified exposure to the DeFi ecosystem, Grayscale’s DeFi Fund product invests in only 10 DeFi protocols while Index Coop’s DPI currently invests in 14 as shown in the above table. Furthermore, Grayscale’s product has a concentrated exposure to Uniswap’s UNI as half of the fund is invested in it.
Another consideration when investing in either of these products is the fee associated with the management of each. Grayscale’s DeFi Fund charges a 2.5% annual fee while Index Coop’s DPI charges a 0.95% streaming fee. I suspect that this fee differential would lead investors to prefer DPI given the repeated mantra, of low-cost/fee investment products, to which most investors are now accustomed.
Another consideration is the availability of liquidity on secondary markets. Grayscale’s prior products achieved listing on secondary markets, including SEC-registered exchanges, but there is no guarantee that this new product will realize the same. Further, if this does not occur, there is no likelihood of secondary market tradability. To wit, there is a disclaimer of such on Grayscale’s website: “As As is the case for its other products, Grayscale intends to attempt to have shares of this new product quoted on a secondary market. However there is no guarantee this will be successful. Although the shares of certain products have been approved for trading on a secondary market, investors in this new product should not assume that the shares will ever obtain such an approval due to a variety of factors, including questions regulators such as the SEC, FINRA or other regulatory bodies may have regarding the product. As a result, shareholders of this product should be prepared to bear the risk of investment in the shares indefinitely.”
DPI by comparison focuses on achieving its tradability on crypto exchanges whether centralized, such as KuCoin, or decentralized, such as Uniswap. As such, DPI is already immediately tradeable and liquid.
The final consideration is accessibility of these products. As of now, investing in Grayscale’s DeFi Fund is limited to accredited investors, those who satisfy a specific criteria, while investing in DPI is open to all who are comfortable investing on crypto trading platforms.
As always, do your own research prior to investing in any product and the above should not be construed as investment advice.
Disclaimers: The author may or may not have positions in any investments mentioned. The author is also a contributing member of the Index Coop DAO.