Crypto’s rapid growth shows no signs of slowing down. As traditional assets fall in return, institutional and retail investors turn to crypto as the market value surpasses 2,000 billion dollars in mid-August.
Faced with the growing interest of investors, MatrixportSales and business development manager, Cynthia wu recently participated in a webinar alongside Leon Marshall, Head of Institutional Sales at Genesis, Jason Urban, Co-Head of Galaxy Digital Trading, and Bill Barhydt, Founder and CEO of Abra. Entitled “Yield Generation: North America vs. Asia,” the discussion explored yield generation opportunities in crypto, with a focus on the potential of DeFi. Here is a recap of some key points to remember.
Extracting yield from the crypto market
While there are different ways to generate returns such as options strategies, the golden opportunity lies in the crypto lending market.
First appearing in 2019, the loan market generally provides top-notch services such as secured loans, credit loans, or margin loans. As more investors and institutions seek liquidity to negotiate, the lending segment has started to gradually develop a mature bank-like structure.
These days, institutions provide each other with liquidity, and with the forward curve there is constant lending and borrowing in the market that generates incredible returns in the process. This summer, Matrixport alone saw significant altcoin borrowing requests from institutional players funneled into DeFi, illustrating the potential of the loan market to generate returns and keep the market active even during bearish times.
Arena without authorization to transfer risk
Still, it’s important to understand that crypto yield-generating activities, such as investing in a protocol, borrowing, and selling, involve transferring and managing risk. With Crypto’s innate characteristics of being an unlicensed arena, the process of generating returns presents incredible opportunities but also potential pitfalls, both of which are becoming more and more important by the day due to increased investor demand. .
For example, investing in DeFi comes with different types of risks, including protocol risks such as bugs, hacks, and frauds; the speculative risks of making the right bet on the underlying assets; and the counterparty risks around your loan repayment guarantees. Therefore, the need to develop sophisticated and elaborate methods to generate yield in a complex DeFi landscape has never been more critical.
That’s why professional asset management services in the field are developing ways to mitigate the risks that frequently arise from interacting with DeFi protocols. Matrixport’s Centralized-DeFi offering does just that by pre-assessing potential vulnerabilities in smart contracts or other aspects of a DeFi project before deploying investments on behalf of investors. Ultimately, the expertise of these asset management services works as a safety net for investor protection, an essential step in building confidence around DeFi and crypto for potential investors.
The moment of adoption by Old Money
The sophistication of crypto yield-generating activities raises the final question: “When would be the point when old money, i.e. heavy deposit institutions like credit unions or traditional banks, would use up their money?” and earn a return from crypto? “
With the return offered by money market funds, it is undeniable that there will be a phase where everyone will want to own valued crypto assets and borrow depreciating assets, such as dollars and euros.
However, banks do not see the problem the same way until the regulations are clear. Although the space was drastically reduced five to seven years ago, there are still no clear lines on how the crypto markets will be regulated, making it difficult for large traditional institutions to allocate assets responsibly without compromising their position.
The risk of an excess of regulatory measures could be the last big boss for our industry to reach its peak. The continued efforts by industry players to mature and professionalize the field and reduce risk through innovation will play a huge role in streamlining the effort for regulatory clarity, thereby enabling those on the fringes with a lot of money to find their way to crypto.
Disclaimer: This is a paid publication and should not be construed as news / advice.