More and more large investors are pouring into the crypto market and the Decentralized Finance Space (DeFi) can also benefit from it. However, the large number of DeFi tokens makes it difficult for investors to keep an overview – Decentralized Index Funds want to solve this problem.
A few weeks ago we reported on so-called „ETF tokens“
These tokens combine several tokens into one and map their price like an index fund. Probably the best known index token is the DeFi Pulse Index ( DPI). DPI summarizes 10 different DeFi tokens and is the largest „ETF token“ in the crypto world with a market capitalization of over 20 million US dollars.
In the traditional financial world, such indices are managed by large asset managers like Crypto Trader or Fidelity. The world’s largest wealth manager Blackrock currently manages more than seven trillion US dollars in assets.
Currently Blackrock is valued on the stock exchange with a market cap of over $ 100 billion.
Blackrock and Co. index funds have eliminated much of the traditional wealth management industry. In September 2019 they surpassed even for the first time actively managed funds and in just the last ten years flowed 1.36 trillion in mutual funds and ETFs, while 1.32 trillion from actively managed funds flowed out.
In recent years, many companies have focused on integrating crypto assets into the existing financial system, which is why there will soon be Ethereum futures in addition to Bitcoin futures . It is also likely that the long-awaited Bitcoin ETF will arrive in 2021. However, it is not difficult to see how difficult it is for the traditional financial world to integrate a new, emerging asset class. This creates an opportunity for the decentralized finance sector.
The DeFi sector is growing rapidly
In contrast, developers of the decentralized finance space are building a new, global financial infrastructure that also includes sections of the population cut off from the financial system. Since it will probably take quite a while, if not years, until there are traditional ETFs on DeFi tokens, such protocols already offer investors opportunities to diversify risks with an „ETF token“. There are currently some DeFi index funds and there will soon be indices for the non-fungible token space (NFT).
In the past 12 months alone, DeFi protocols managed capital from $ 1 billion to over $ 16 billionclimb. This wave of innovation has spurred a number of teams to create crypto-native index funds in DeFi. Instead of in broker accounts or at banks, users of these index funds can manage their capital themselves and store it in an Ethereum wallet.