Regulation holds back investors from plunging into DeFi
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Opinion

Regulation holds back investors from plunging into DeFi

DeFi is not a strategic asset allocation for mainstream investors yet, but big gains on cryptos and now high yields are drawing in the front runners.

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In financial markets, regulation is the key driver of institutional adoption. Regulation most directly impacts banks that play the key intermediary role between, on the one side, issuers and manufacturers of investment products – who are also closely regulated – and on the other investors and end-buyers that are less constrained, but that regulation is meant to protect.

Participants in the fast-growing field of decentralized finance (DeFi) talk about institutional money flooding into this new asset class in search of capital gains and income.

They are getting ahead of themselves.

The most recent annual study from PwC and the Alternative Investment Management Association (Aima), released in May, is a reminder that the median assets under management (AuM) at the dedicated crypto hedge funds leading this flow is just $15 million and the median ticket size from their high net-worth (HNW) and family-office clients is only $400,000.

Even beyond hacks and pump-and-dump scams, worrying questions remain

The most successful strategy has been the simplest. In 2020, discretionary long-only in crypto gave a 294% return.

DeFi is not a mainstream strategic allocation yet, but that return is why it could be, with many larger traditional hedge funds now eager to share in the spoils.

Aima


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