Grayscale Unveils DeFi Fund Citing Investor Interest in Sector

New fund joins Grayscale Digital Large Cap Fund as the firm’s second diversified offering

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key takeaways

  • New fund tracks the newly released CoinDesk DeFi Index comprised of protocols such as Uniswap, Aave and Compound
  • Offering launches as some institutions that invested in crypto earlier in the year have become a bit more “gun-shy” amid the volatility, industry CEO says

The world’s largest digital currency asset manager is launching a fund designed to give investors exposure to decentralized finance protocols that the firm believes can redefine the future of the financial services industry.

Grayscale Investments, in conjunction with CoinDesk Indexes, has launched the Grayscale Decentralized Finance Fund. Grayscale’s 15th investment product tracks the newly released CoinDesk DeFi Index, which aims to provide a broad-based, benchmark representation of DeFi protocols.

“Like with all digital assets in the crypto ecosystem, it’s very early days for DeFi, and the technology and use cases are still in development,” a Grayscale spokesperson told Blockworks. “But our investors have expressed strong interest in DeFi and it’s a space where there’s been organic user adoption at scale alongside a very active developer community.”

Brian Mosoff, CEO of Ether Capital, said that interest in crypto assets has gone beyond bitcoin and ether, noting that Grayscale has been a leader in giving institutional and accredited investors various access points to the space.

The company launched its flagship product, the Grayscale Bitcoin Trust (GBTC), in 2015, and the product has grown to $20.7 billion in assets under management. 

The asset manager also offers products that give investors exposure to various other single crypto assets, such as ether, filecoin, chainlink and litecoin, in the form of a security while mitigating the challenges of buying and storing the assets directly.

Grayscale announced in a blog post earlier this year that it was considering adding 13 assets to its product family.  

The new DeFi fund is just the second diversified fund the company has launched; the first, the Grayscale Digital Large Cap Fund, launched in 2018. 

Creating an index product targeting decentralized finance seems like an obvious next step for the firm’s product lineup, Mosoff told Blockworks, adding that he expects other asset managers to come to market with similar products.

“DeFi is certainly a hot sector. It has been for the last 12 months and it probably will remain to be of interest for the next number of years,” he explained. “If there was a way to figure out how to give NFT exposure, that would, I’m sure, also be on the roadmap.”

As of July 1, the largest holding in the CoinDesk index tracked by the fund was Uniswap, accounting for about 50%. Uniswap, a company founded in 2018, built a protocol that facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through the use of smart contracts.

Others in the index include Aave, an open source and non-custodial protocol to earn interest on deposits and borrow assets, which carries a 10% weighting, as well as Compound, an algorithmic, autonomous interest rate protocol built for developers, which carries about 8% weighting.

Mosoff said the initial investor demand for Grayscale’s latest offering will be interesting to monitor amid what he called a “pretty hefty pullback” in the crypto market as a whole. 

The price of bitcoin was below $31,000 Monday morning. The cryptocurrency peaked at nearly $65,000 in April.

“Institutions that were willing to pile in around mid-March are a little more gun-shy, and they’re not used to the volatility of the asset class,” the Ether Capital CEO added. 

But participants who remain committed to investing in the space have been rewarded after the “boom and bust” cycles beginning in 2013 and 2018, Mosoff argued.

“The question is who’s going to stick around and just say DeFi’s not going away?” he said. “A lot of the assets that are appealing to investors today are key pieces of infrastructure that will make up whatever the future looks like, no matter if it’s more regulated or less regulated.”

Grayscale’s launch comes as the firm looks to broaden crypto accessibility in other ways as well. The firm has been in discussions with US regulators since 2016 to convert GBTC into an ETF, and Grayscale CEO Michael Sonnenshein said during an interview on SiriusXM last week he is optimistic that the SEC approving a bitcoin ETF was “a matter of when and not a matter of if.” 

Already, Vesper Finance partnered with hedge fund Blockforce Capital to propose a DeFi fund, Blockworks reported in May. The offering would give investors exposure to volatile growth assets like the VSP token, ethereum and bitcoin, as well as stablecoins such as USDC. 

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