DeFi or Bitcoin ETFs, Retail Investing Tips
- $9 billion of DeFi assets are locked on avalanche, making it a competitor to ethereum and solana.
- John Wu is the president of Ava Labs, which founded the blockchain.
- Wu shared his insights about DeFi, including why hedge funds prefer it to bitcoin ETFs.
John Wu and Ava Labs have big plans for the crypto space.
“Our larger mission is not just to be a dominant player in the DeFi system,” the fintech firm’s president told Insider in a recent interview. “We want to help to tokenize the $700 trillion of the world’s assets that sit on the balance sheets of financial services firms.”
Ava Labs created avalanche, a layer-one blockchain protocol on which $9 billion of crypto assets are locked. Its native token, avax, has soared 2,000% this year.
Wu drew a distinction between avalanche and two of its layer-one altcoin competitors, ethereum and solana. He said that he expects the former to struggle due to its scalability issues, and noted the latter’s focus on NFTs.
“Ethereum are trying to be the world’s largest computer,” he said. “They’ve had a head start, but their technology isn’t as good – if they don’t implement upgrades, they’ll end up being MySpace or Friendster, rather than Facebook.”
“Solana have their advantages, but they’re more focussed on the NFT and digital collectible world,” Wu added.
Ava Labs’ focus, meanwhile, is firmly on DeFi, or decentralized finance. DeFi offers investors access to more sophisticated financial products through a blockchain network, removing the need for intermediaries like banks or brokerages.
“I’d be lying to you if I said our goal wasn’t to overtake ethereum, but the greater goal is to grow the DeFi space,” Wu told Insider. “Our greater goal is to grow the space from $250 billion to become a $10 trillion market like fixed income or real estate.”
Insider spoke to Wu about hedge funds’ current focus on DeFi investing. He also shared two tips for retail investors looking to break into the space.
DeFi over bitcoin ETFs
Hedge fund managers use active strategies to try to generate better-than-average returns. Wu pointed out that these sorts of investment vehicles would likely already own bitcoin if they were operating in the crypto space.
“Bitcoin was the gateway into the industry,” he said. “But a lot of funds already own it.”
That means that the recent bitcoin futures ETF launch won’t change much for hedge funds, as many are already exposed. Hedge funds are typically defined by their usage of higher risk investment strategies, and Wu said that this means they are investing in another asset class – DeFi – instead.
“DeFi investments are where they can get more reward for the risk,” he told Insider. “And hedge funds are willing to take that risk.”
In addition, Wu noted that investors buy bitcoin as a “store of value” and inflation hedge, rather than because of its fundamental applications. He said at this stage in crypto’s development, hedge funds are beginning to look at tokens with greater technical utility.
“Now, funds are interested in finding real utility, and the most utility on all blockchains right now is in DeFi,” he said.
Retail investing tips
Retail investors can buy into the industry by trading DeFi tokens on crypto exchanges. Wu shared two pieces of advice for investors looking at the industry.
First, he said it was important to be vigilant about potential scams, by looking into the community behind a token or coin before choosing to buy.
“Retail investors should really do their homework before they invest,” he said. “Like any emerging industry, there are a lot of scams out there.”
“There are always the sort of scams you see in The Wolf of Wall Street –
penny stocks
, all that stuff in the traditional finance world, they exist more in emerging industries than they do in established ones,” Wu added.
Secondly, Wu said retail investors need to decide on their own risk tolerance level, given the risk/reward profile of different tokens.
“I’d recommend that investors experiment first, to understand there are different products in DeFi and traditional finance based on their risk/reward tolerance,” he said. “There are DeFi products where you can get higher returns, but you’re assuming more risk because there’s less regulation.”
But, despite those risks, Wu encouraged retail investors to look into DeFi. He believes this industry could explode over the next year.
“DeFi is a giant petri dish of genius, of things that will give them more power and more access to products that they can’t get in the traditional finance world,” he told Insider. “It’s a wonderful thing.”
