DeFi Fund: What is the return on investing in 10 DeFi protocols?

  • The DeFi fund incorporates 3 lending instruments, 3 utility tokens and 4 derivatives/exotic tokens
  • All DeFi protocols invested are Ethereum smart contracts. The projects have been selected by degree of decentralization, transparency, true non-custodianship, user adoption, media popularity, innovation
  • Setting up took only 2 hours applying MetaMask as a popular wallet
  • After two weeks the fund significantly outperforms traditional asset classes

What is the benefit of investing in DeFi?

The rules for our DeFi fund

  • Investment volume: just 100 € to be invested into 10 different DeFi protocols to generate passive income.
  • Starting date: 1st January of 2020.
  • Investment criteria: It has to be an open platform, precisely: Non-custodial (i.e., full control of the funds), advanced decentralization (i.e., protocol is making significant effort to decentralize), accessible by anyone (i.e., no KYC/onboarding), high transparency (i.e., open-source code).
  • Minimum market capitalization: 1 million € to have a certain level of user adoption
  • Protocol variants: If there are multiple options within a protocol to choose from, we will go with either the most popular, or the one with the highest returns.
  • Low maintenance: The project should require no remaining actions or minimal additional actions after making the initial investment. In doing a naive investment strategy, our educational DeFi fund is therefore for crypto beginners and experts alike.
  • Important condition: The projects should be innovative and fun.
  • Benchmark: Comparison of the performance against a variety of benchmarks.
Table 1: DeFi financial instruments that matched our selection criteria.

Step 1: Funding the fund and investing in DeFi financial instruments

Figure 1: Performance (in €) of each asset since the start of the year

Step 2: Monitoring the investments

Figure 2: Fund performance (in €) of the DeFi Fund

Risks are still very high

But instead of DeFi, why not invest in simple government bonds?

Table 2: Selected benchmarks to compare the performance of our DeFi fund.
Figure 3: DeFi Fund in comparison to various benchmarks

Conclusion

Remarks

  • Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
  • Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and the everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
Our two books: the first one on blockchain and the society and the second one on blockchain and finance

Authors

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Philipp Sandner

Philipp Sandner

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Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center