Let’s Build A DeFi Fund

2019 saw the rise of a flashy newcomer within the blockchain narrative: DeFi. Broadly speaking, DeFi is an ambitious attempt to decentralize core traditional financial use cases like trading, lending, investing, wealth management, payment and insurance on the blockchain. Simply speaking, DeFi can be described as a set of interconnected smart contracts. DeFi protocols are financial instruments like LEGO bricks which can be plugged together. Utilizing the Ethereum blockchain as the core infrastructure, DeFi is based on decentralized Applications (dApps) or protocols. As with LEGO bricks, every dApp can be uniquely combined creating a peer-to-peer, open-source financial network.

The projected benefits of DeFi are true decentralization, censorship resistance, worldwide participation regardless of social status while dispensing with trusted (and expensive) third-parties. Yet, DeFi is experimental and technically complex. In order to explain DeFi as simply as possible, we invested an equal amount of money into ten DeFi projects on the 1st of January 2020.

Think of it as a lazy-man’s DeFi fund for educational purposes. Buy and hold only. No trading. No rebalancing.

This keeps things as simple, objective and tangible as possible. In regular updates we will report about the performance of the DeFi fund and showcase the projects in more depth. We want to show at the start of the decade what is already possible and share our excitement for what the future will bring. Furthermore, we want to document the experience of using the DeFi platforms, the risks involved, investments’ volatility, the funds’ returns and the comparison with traditional benchmarks such as gold.

Therefore, a clear warning: DeFi still remains a risky business. The market’s volatility is significant, the protocols potentially include tech vulnerabilities with limited possibilities for insurance, and the protocols’ development as well as the price feeds (i.e. oracles) are still often centralized. The drawbacks are a result of a still immature industry and could be more openly stated in disclaimers, but on the positive side it is an important topic already being worked on.

From our side, before setting up the fund, we already had a basic understanding of the protocols being invested in. It is safe to assume that without this knowledge it would have taken longer to invest. Admittedly, people interested in DeFi also have to have a profound tech and Ethereum understanding.

The fund itself is a hands-on, lazy man’s educational fund without complex rebalancing and daytrading. Furthermore, the performance of 1000€ invested on the 1st of January 2020 is easy to follow and reduces overall complexity.

Expect more to come ✌️