Bitwise Launches a DeFi Index Fund

Bitwise Asset Management, which first brought the index strategy to digital assets, is doing the same for DeFi tokens. The San Francisco based digital asset manager launched an index fund for decentralized finance (DeFi) tokens Wednesday, called the Bitwise DeFi Crypto […]

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key takeaways

  • The fund will allow accredited investors to gain exposure to assets like Uniswap and Aave
  • Anchorage Digital Bank will be the custody partner of the DeFi fund

Bitwise Asset Management, which first brought the index strategy to digital assets, is doing the same for DeFi tokens.

The San Francisco based digital asset manager launched an index fund for decentralized finance (DeFi) tokens Wednesday, called the Bitwise DeFi Crypto Index Fund. It holds a portfolio of nine digital assets (as of late Tuesday) that power DeFi services.

One of Bitwise’s more popular funds tracks an index of the 10 largest crypto assets, including bitcoin, ethereum and litecoin; its current $800 million in assets under management is double the $400 million Bitwise reported last month.

Decentralized products have exploded this month as bitcoin continues climbing to all-time highs and investors seek to gain exposure to other digital assets. The total estimated value of funds currently locked into DeFi-related contracts recently crossed $40 billion, and in January decentralized exchange trading volumes reached a record high of $55 billion. 

Each asset in the new fund is screened for risks, weighted by market capitalization and rebalanced monthly. The expense ratio is 2.5 percent, which includes costs related to custody, tax, accounting, and management fees. 

AssetTickerCategoryWeight
UniswapUNIExchange25.14%
AaveAAVELending23.65%
SynthetixSNXDerivatives11.80%
MakerMKRLending10.67%
CompoundCOMPLending8.71%
UMAUMADerivatives6.16%
Yearn.FinanceYFIAsset Mgmt5.47%
0xZRXExchange5.07%
LoopringLRCExchange3.60%
Source: Bitwise Asset Management

DeFi is the movement towards digital financial instruments that don’t rely on centralized authorities like banks, but instead use smart contracts on blockchains (most commonly, the Ethereum blockchain). 

Similar to bitcoin’s promise to make money and payments accessible to anyone without using third parties like banks, DeFi promises to make financial services — saving, lending, trading and more — accessible to anyone without those same Wall Street intermediaries. The upside for removing those third parties could be faster operation, 24/7 availability, no minimums or paperwork, full transparency and auditability. 

Matt Hougan, chief investment officer for Bitwise Asset Management, called DeFi “the story of 2021” in a Wednesday press release. Some decentralized trading venues handle more than $30 billion in volume per month today and automated lending programs are making individual loans as large as $200 million, Hougan said.

Anchorage Digital Bank will be the custody partner on the DeFi fund. Bitwise said the new fund could seek to facilitate public trading of shares in a secondary market.  

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