Apollo’s Moonshots: dHEDGE is democratising access to hedge funds
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Matthew Harcourt, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.
Cryptocurrency and decentralised finance are democratising access to hedge funds, which many countries restrict to wealthy investors in the name of “consumer protection”.
In Australia and many parts of the United States, for example, slot machines and sports betting are perfectly legal — but certain sophisticated investment strategies are limited to punters earning over six figures.
However crypto is about making those kinds of regulations irrelevant and unenforceable, for better or for worse.
dHEDGE is a decentralised investment fund co-founded by Apollo Capital chief investment officer Henrik Andersson.
“He’s very much active in that project,” Matthew Harcourt says. “Basically it’s like on-chain asset management, basically you buy the pool token and your asset goes into the pool.
“And then an investment manager, in a noncustodial and trustless way, can deploy those assets into various strategies or various coins, trying to earn a return.
“And in return for them managing the funds, they get paid a performance fee, which they set. They also set the assets that they can trade with.”
dHEDGE recently launched version 2.0 of its contract on Polygon, the Ethereum scaling solution.
⋮⋮ Announcing dHEDGE V2 ⋮⋮
Since Q4 2020, dHEDGE V1 supported a community of DeFi investors and pool managers
To address surge in gas fees, the team was set to work on a solutions with dHEDGE V2https://t.co/9gQ7lf6i3q
— dHEDGE (@dHedgeOrg) August 2, 2021
“One thing that really hindered dHEDGE v.1 on Ethereum was obviously the gas fees, as you can imagine,” Harcourt says.
Due to network congestion, Ethereum gas (transaction) fees have reached $40 or $100 at various times this year.
“So trading through dHEDGE as a manager was very expensive, especially when gas prices were sky high, you had to be running a pretty big portfolio to make having a fund worth it,” Harcourt says.
But on Polygon, a so-called “layer two solution,” transaction fees are minimal – generally just pennies.
Version 1 of dHEDGE was powered by Synthetix, the synthetic asset protocol founded by Sydneysider Kain Warwick, but not the Polygon version.
“The user’s wallet connects into different protocols. So at the moment investment managers can buy and sell select ERC-20 (Ethereum) assets on Sushi Polygon,” Harcourt says.
Right now investment managers can’t actually short assets or use leverage — the techniques that separate hedge funds from more traditional investment funds — but the platform is working to integrate with Aave to allow that functionality. Aave is the leading crypto lending platform, so investment managers could borrow Ethereum to use leverage, or buy Eth and sell it to go short, Harcourt explains.
“So, super interesting to see how the investment ecosystem develops on dHEDGE Polygon, to see what different protocols they integrate to let the managers have diversified investments,” Harcourt says.
Anyone can start a pool on dHEDGE and be an investment manager, and there were hundreds of different pools on the platform when Stockhead checked on Friday.
Many other pools are much smaller, with only tens of thousands of dollars in assets.
The managers can trade the funds under management, but they can’t withdraw the tokens from the platform, Harcourt says. “So it’s completely trustless, permissionless.”
Overall the total value locked on Ethereum is US$28.2 million, and the managers have earned $2.6 million. On Polygon, where it just launched, there’s $1.8 million in TVL across 74 pools.
Harcourt believes that decentralised asset management will grow in importance as defi gains traction. Another project in the field is Enzyme Finance, formerly known as Melon Protocol, which launched in 2017.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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