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Chanticleer can already hear central bankers say that crypto is a Ponzi scheme, a financial empire built on nothing, and that bitcoin includes lines of code that are ultimately worthless.
For Henrik Andersson, a true believer in crypto and chief investment officer of Apollo Capital Management, the success of his flagship fund is due to an investment strategy focused on the disruption of financial services by cryptos.
The main creation of value occurs in what we call decentralized finance.
Henrik Andersson, Apollo Capital Management
We made two assumptions when we launched the fund 3 years ago, he says. One was that you have to be actively managed in the crypto space because it is a very inefficient space.
The second is a strong emphasis on an area of cryptography called decentralized finance.
So these are two strong convictions that we had… and they have come true when we compare our returns to a passive index like the Crypto 20 index. We have significantly outperformed this index since its inception.
When it comes to DeFi (decentralized finance), it’s now easier to understand that this is really where value is captured outside of bitcoin.
We have bitcoin in the wallet and we strongly believe in bitcoin, but the main value creation is in what we call decentralized finance, using blockchain technology to automate financial services.
Benefits and Risks
A detailed explanation of DeFi, its potential benefits and the risks it poses to the financial system can be found on the Federal Reserve Bank of St Louis home page.
An article published in February by Professor Fabian Schar of the University of Basel adopts a tiered framework for analyzing the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt, blockchain and on-chain derivatives. asset management protocols.
I conclude that DeFi is still a niche market with some risks, but it also has interesting properties in terms of efficiency, transparency, accessibility and composability, he said.
As such, DeFi has the potential to contribute to a more robust and transparent financial infrastructure.
Schars’ article highlights the genius of cryptography to disrupt the exchange infrastructure of traditional financial markets and the traditional intermediation undertaken by banks.
Everyone has access to the platform and can potentially borrow money or provide cash to earn interest.
Professor Fabian Schar of the University of Basel
The exchange infrastructure with its centralized exchanges, stringent capital requirements for brokers, and cumbersome clearing and settlement was initially replaced with less capital-intensive crypto models operating in real time.
This relatively new paradigm is now being replaced by even more advanced crypto mining models, with peer-to-peer trading now seen as more secure than crypto exchanges.
The traditional bank, in which a regulated institution with strict capital requirements takes deposits and lends money, is replaced by decentralized lending platforms that do not require the borrower or lender to identify themselves.
Everyone has access to the platform and can potentially borrow money or provide cash to earn interest, says Schar.
As such, DeFi loans are completely unauthorized and do not depend on trusting relationships.
Earn interest
For example, the app called crypto.com allows you to take your bitcoin or other cryptocurrency and lend it out for interest rates of up to 6% per annum.
Andersson says over-collateralized loans work like this: someone puts $ 100 of ether, which is the native currency of the Ethereum blockchain, on a platform and someone else can borrow $ 75 in coins. stable against it.
He says there are several players who are trying to make sub-secured loans, which are based on a more traditional loan mix where you know your counterparty and DeFi.
Andersson claims that the world’s largest decentralized lender is Aave, which is officially defined as a non-custodial decentralized liquidity market protocol in which users can participate as depositors or borrowers. Its capital is approximately $ 13 billion ($ 18.2 billion).
The Apollo Capital Fund is invested in several decentralized exchanges, including Uniswap, Curve and SushiSwap.
What you can do there is trade assets on the blockchain itself using smart contracts instead of going to an exchange like Binance, Independent Reserve, or BTC Markets, he says.
Decentralized exchanges generate around $ 60 billion in transaction volume per month. We have seen a huge increase over the past 12-18 months in the use of decentralized exchanges.
Andersson is bearish on one of the most popular alternatives to Ethereum called Cardano, a blockchain and smart contract platform founded in Switzerland.
Our allocations in Layer 1 blockchains are primarily driven by our analysis of a blockchain’s ability to develop and foster a thriving DeFi ecosystem, he says.
Based on this principle, we remain without investment in Cardano. It still lacks smart contract capability and is not user friendly for existing DeFi developers due to the programming language that will be used once smart contracts come online.
The asset mix of Apollo Capital Fund shows the breadth of choices that crypto managers face and funds do not rely on bitcoin price movements.
Breaking
About 29% of the fund is in crypto-smart contract platforms, 27% in decentralized finance, 19.8% in cryptocurrencies as a store of value, 10.4% in neutral strategies in the market via the Apollo Capital Opportunities Fund, 7.8 percent is in tokens, 5.5 percent is in stablecoins and cash, and 0.5 percent in futures.
The total assets under management in Apollo Capital Fund and Apollo Capital Opportunities Fund amount to $ 100 million.
Anderssons skills as a fund manager are evident in his performance numbers, but he hasn’t eclipsed the recent performance of one of Australia’s top crypto funds, Richard Galvin of Digital Asset Capital Management.
Galvins Digital Asset Fund, which is not included in the Morningstar data set, generated a return of 2,747% in the 12 months ended April 30.
The fund’s outperformance through April is due to its significant weightings in some of the best performers in the DeFi sub-sector, including Matic (up 128%), Solana (up 121%) and Maker (up 106%), according to the latest. monthly fund report.
Andersson says one of the areas of growth is on-chain derivatives, which allow you to invest in protocols that create options, or synthetic assets, based on smart contracts.
He says these are on the blockchain and are not done in the traditional way with counterparties on every transaction.
One of the successful Apollo Capital Management winners is Melbourne-based investor Alex Waislitz, who invested in the company in March.
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