First Uniswap ETP Goes Live as Institutional DeFi Products Proliferate

Institutional investors appear to be flocking into DeFi assets, with a flurry of institutional investment products offering exposure to the decentralized finance sector being launched by major asset managers this year.

By: Samuel Haig Loading...

First Uniswap ETP Goes Live as Institutional DeFi Products Proliferate

Institutional investors appear to be flocking into DeFi assets, with a flurry of institutional investment products offering exposure to the decentralized finance sector being launched by major asset managers this year.

Valour Inc., a Switzerland-based issuer of digital asset-based exchange-traded products (ETPs), became the latest asset manager to embrace DeFi on Oct. 26 when it launched the world’s first ETP tracking the governance token of leading decentralized exchange Uniswap (UNI). The product is trading on the German-based Börse Frankfurt Zertifikate exchange.

Valour CEO Diana Briggs said, “The future of financial services is being built on open, interoperable protocols.” She added that the firm is working hard to bring additional digital asset ETPs to market and offer exposure to DeFi assets “via mainstream investment channels.”

The product is physically backed, meaning Valour buys and sells a corresponding value of UNI as units of the ETP are purchased and sold on the exchange.

Valour’s Institutional Appeal

Valour launched in 2018 and is quietly emerging as a significant player within the institutional crypto product sector, having amassed $290 million worth of assets under management (AUM).

It debuted with a Bitcoin ETP in December 2020 and launched its Ether ETP during April 2021, before following up with products tracking Cardano and Polkadot in May and Solana in September.

Its products initially traded exclusively on the Nordic Growth Market. But in October, Valour’s ETPs were launched on Börse Frankfurt Zertifikate, with Briggs praising German lawmakers for “providing a clear mandate for institutions to invest in crypto” and ripening the digital asset sector for mass adoption.

Valour’s parent company, DeFi Technologies, describes itself as the “only publicly-traded company built to give investors direct exposure to the booming decentralized finance market.” Its venture fund offers exposure to eight top DeFi assets including MKR, SNX, SUSHI, YFI, LUNA, LINK, UNI and AAVE.

Not the Only Way

However, Valour’s ETP is not the only way institutional investors can gain exposure to UNI via a regulated product.

Grayscale launched its DeFi Fund in June, with the product tracking CoinDesk’s DeFi Index (DFX). Despite branding itself as offering diversified exposure to a selection of leading DeFi protocols, the product has been criticized for tracking an index that is roughly 50% composed of UNI.

CRV is the second-most dominant asset in the DFX index at 14.3%, followed by AAVE at 9.6%, COMP at 6.2%, and SUSHI, MKR, SNX, YFI, UMA, and BNT with between roughly 2% and 5% each respectively. As of this writing, Grayscale’s DeFi fund is up 43% since inception and represents an AUM of $13.3 million.

Grayscale also added UNI to its Digital Large Cap Fund at the start of October, with the token comprising the fifth-largest held by the fund.

More Asset Managers

Other institutional asset managers have also stepped in to capitalize on DeFi’s meteoric rise.

In February, Bitwise Asset Management launched the world’s first DeFi index fund. While the fund is up nearly 24% in the past three months, it is down 8.7% since inception.

Galaxy Digital collaborated with Bloomberg to launch a joint price index tracking decentralized finance assets, in addition to launching its DeFi Index Fund in August.

In late September, Amplify ETFs, the issuer of the standout blockchain-focused exchange-traded $BLOK, filed with the SEC to launch the Amplify Decentralized Finance & Crypto Exposure ETF.

If approved, the fund will invest a minimum of 40% of its net assets into equity securities issued by DeFi companies. This includes firms that derive at least 50% of their revenue from mining and staking, provide DeFi services to traditional financial institutions, or develop and distribute DeFi application and software services, in addition to “pre-revenue decentralized finance companies.”

At the start of October, Australia’s Trovio Capital Management announced the creation of its Digital Asset Income Fund — an institutional product offering exposure to gains from high-yielding stablecoin DeFi protocols.The fund will regularly rebalance its assets in a bid to maintain 90% exposure to stablecoins, and predicts annual returns of between 15% and 20%.

Data on Institutional DeFi

According to blockchain intelligence firm Chainalysis, many institutional investors arrived in DeFi during the second quarter of this year.

Chainalysis estimates that transactions worth $10 million or more represented more than 60% of all transactions involving DeFi protocols during Q2.

In PricewaterhouseCoopers’ annual crypto hedge fund report, the firm estimated that 31% of crypto hedge funds were using decentralized exchanges directly.

However, not everyone agrees that institutional investors are chomping at the bit to gain exposure to DeFi assets. Genesis Trading’s Michael Moro told Business Insider recently that the prevalence of exploits and buggy code in the DeFi sector is scaring some large wealth managers away.

“Errors and mistakes that you’ve seen certainly make [institutions] shy from doing anything in size, in any particular platform,” Moro said.

While the U.S. Securities and Exchange Commission’s (SEC) recent approval of the United States’ first Bitcoin exchange-traded fund has been described as opening the door to new institutional capital to access crypto, it appears smart money has already set its eyes on DeFi.

Demand is evidenced by this year’s steady proliferation of DeFi-focused investment products, including ETPs, index funds, and perhaps an ETF.