DeFi investors expect massive asymmetric returns

Decentralized Finance (DeFi) has emerged as a New Vector for the financial system, Finance 2.0., with great growth potential over the last two years. It's an ecosystem of financial applications (d'Apps) that are built on top of a blockchain, aiming to wholly replace the existing financial legacy infrastructure of banks, lenders, insurers. In contrast to the traditional financial system, which requires an upgrade, DiFi blockchain's decentralized architecture allows increased security, audibility and interoperability ("lego feature").

The Total Value Locked (TVL) in DeFi protocols TVL has doubled since early August, surpassing $8 billion. While $8B is a relatively tiny amount by conventional financial sector standards, the DeFi sector is expanding at an impressive pace.

Dan Morehead, Ceo of Pantera's Bitcoin fund who predicted Bitcoin Exposition Back in 2013 says DeFi Market Could hit $400 Billion, outpace BTC. He thinks that "there is much more upside in those small altcoins DeFi protocols".


The top five DeFi platforms in terms of valuation include Aave, Maker (both for the lending category), Curve Finance (DexEs), YearnFinance (assets), Synthetix (Derivatives). Those top5 are accounted for 50% of the market cap. , according to DeFi Pulse.


Below is a graph of the coefficient of variation (CV) between bitcoin, ether, cold, bonds, SP500 index and top 5 DeFi projects. CV is a useful measure of the deviation of return between different asset classes and allows us to determine how much volatility, or risk, is assumed in comparison to the amount of return expected from investments. It shows that BTC has the least variation among crypto assets, while DeFi project Yearn Finance has the most. The CV helps an investor understand the amount of risk they are taking on compared to the amount of return they are expecting on an investment.

The investors with higher risk tolerance are choosing the assets with higher volatility, or price movements, in the hopes of higher overall returns.

"There is much more upside in those small altcoins DeFi protocols", says Morehand. "If we talk about average stock, the upside and down goes to a roughly the same percentage ( for example, +- 30%), Assymentrics bets is when the upside is so many factors bigger then downside. Cryptocurrency is an extreme example of this."

‘DeFi will outperform Bitcoin in next five years.It's much more likely that the entire DeFi space goes up a 100x over the next five years than Bitcoin.”

continues founder of Pantera Bitcoin fund, who predicted Bitcoin exposure backed in 2013.


Drawing an analogy with the hype associated with ICO in 2015-2017, DeFi projects is much more than an idea, enthusiasm and the WhitePaper. They are introduced as launched technology solutions ready to disrupt the traditional financial sector.

Hence still in its infancy, DeFi is aware of the risk. Such solutions as insurance, swap pools will construct the situation. Other problems to solve mentioned by AAVE are:

  • Lack of data n financial data. Chainlink one of the projects working on it

  • Requirement for monitoring transactions - where human-readable wallet addresses could be an option. Until it's solved we have a good precedent when #Tether has recovered and returned $1 million worth of USDT to a group of Chinese traders who, in error, sent the funds to a wrong decentralized finance (#DeFi) address.

  • Complience issues

  • System Failure - The potential risk associated with the protocols come from the fact that today many of DeFi protocol's smart contracts are lacking revision and audit.

  • Hacking

  • Asset price information Blockchain oracles enable the connection to the reliable external data providers, enhancing the transparency and reliability of DeFi protocols.

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