DeFi Index Funds - December Review
A data-driven review of the four main DeFi funds live on Ethereum.
Introduction
Over the last 6 months, four different funds have been launched to track the DeFi sector on Ethereum. I’ve been crunching the numbers to look at their relative performance and how they manage to use diversification to protect the downside of investing in the wrong project.
I think that 2 months is really too short a time frame to consider, so I’ve used 11th October 2020 as a common start point for this review as that is when the last of the 4 was live. Next month I’ll move onto 3 month periods.
$DPI
$DPI was launched on the 14th September and is a 100% collateralised, market cap, index following 10 DeFi governance tokens (Figure 1)
Since the 11th October, the fund saw a dip towards the start of November, with UNI, YFI and AAVE all dropping between 40 and 45%. Since then DPI has moved back into profit boosted by strength from AAVE and YFI and latterly SNX and COMP.
sDeFi
Is a synthetic fund created by Synthetix. As a synthetic product, it doesn’t hold any of the tracked tokens as collateral. The fund is based on constant weights of the selected tokens as decided by Synthetix governance. Figure 2 shows the performance of sDeFi compared to it’s current components. sDeFi performed better than DPI over the same timer period, but this appears to be partially due to sDeFi being frozen in Late October when the sector was dropping.
$DeFi+L, DeFi+S, and DeFi++
In October 2020, PieDAO launched two funds targeting the DeFi sector. These are both 100% collateralised constant weight indices based on smart Balancer pools. As the market price data from Coingecko used for this review took a couple of days to settle, I’ve taken 11th October as representing the start date for my comparisons.
Figure 3 presents the performance of $DeFi+L and the underlying components. This shows a stronger performance compared to DPI as a result of exposure its focus on the larger MCap tokens which had the strongest performance.
Figure 4 presents the performance of $DeFi+S and the underlying components. The smaller MCap tokens had lower performance the the larger ones and this is reflected in the flat performance for this fund.
DeFi++is a new product from PieDao itis built on top of +L and +S using a Balancer pool with a split of 70 to 30 between the two. It was launched on the 6th November 2020. I‘m assuming a straight arithmetic split for performance (This is technically incorrect due to the rebalanceing within the balancer pool, but I think it’s good enough for now).
Comparison between funds
Detailed comparisons between these funds could be considered an exercise in futility. They all work and capture the average price performance of the undying tokens. Any differences between them is due to the index structure and the weights of the components.
Figure 5 presents the overall performance of all four funds and $ETH and $BTC over this 11 week period. Unsurprisingly the three funds focused on the larger cap tokens similar profiles with between 27% and 28% gain. The smaller caps have under performed and DeFi+S is slightly negative. All the DeFi funds are dwarfed by the impressive run of %BTC over the last 11 weeks.
Table 1 presents a summary of the individual components’ performance and their current weights within the five index funds. $DeFi+L is slightly better than the others due to the large proportion of $LINK and focus on the better performing larger tokens.
Final Thoughts
All four funds attempt to give the owner exposure to the average performance of the DeFi sector. All succeed with performance within the range of the underlying assets with protection against the downside of individual performance (as is expected for a diversified fund).
Links
$DeFI+L$DeFi+S and DeFi++ from $PieDAO
$sDeFi from Synthetix app,
Disclosure and Disclaimer
I’m a long term investor in crypto currencies including DeFi. I am an active member of the INDEXcoop which manages the $DPI fund.
This is not financial advice, all investments are risky, crypto investments are more risky than most. Do your own research. Do not invest more than you can afford to lose.
Note MCaps are wrong...
DPI $24 M
sDeFi $6 M
DeFI+L $2 M
DeFi+S $1M