The first IPO-traded defi fund will be launched in Brazil next month

The world's first stock market-traded fund that is dedicated to decentralized financial networks is to come onto the market in Brazil next month and deepen the advance of the $ 10th ETF industry into virtual assets.

The step will enable investors to pursue a basket of projects that rely on decentralized financial, trade and credit networks whose standards are automated and are often decided on consensus.

The funds called Hashdex Defi Index ETF marked a departure into an industry that previously included funds that invested in listed crypto companies or popular cryptocurrencies such as Bitcoin and ether - provided this was approved by the supervisory authorities. It will be noted on the Brazilian stock exchange on February 17th.

"By offering the first defi ETF in the world, we give our global investors the opportunity to participate in the next development of the crypto ecosystem," said Marcelo Sampaio, CEO from Hashdex, a Brazilian crypto asset manager.

The decentralized financing aims to abolish a central intermediary - such as a bank or an stock exchange - in order to provide financial services such as lending and trade through an algorithm. Proponents say that it offers more transparency, censor resistance and faster settlement times than conventional financing.

It was one of the fastest growing areas of the crypto-asset industry, although interest has subsided in the past two months because the crypto prices have fallen. According to DAPPRADAR data, decentralized applications (DAPPS) hold around $ 107 billion in customer funds compared to a maximum of $ 180 billion in November.

The Hashdex Defi Index ETF will invest in the tokens developed by DAPPS, networks that build on blockchain technology and use preprogrammed algorithms to carry out cryptocurrency transactions. Dapp-token can be traded on other cryptoma markets, but also enable the owners to coordinate the network with governance suggestions and developments.

The ETF will invest in eight DAPPS and related service providers such as oracle, collect the data at wealth prices from the outside and send it to a blockchain or a distributed lid.

The DAPPS that aims at are uniswap, the exchange of cryptocurrencies and tokens; Lender Aave; Polygon, a service to accelerate transactions on blockchains; and Chainlink, an oracle. The ETF will reproduce the CF Defi Composite Index Brazil.

The introduction illustrates a gap between global financial centers that have previously approved little innovation in the growing area of digital assets, and relatively laissez-fair secondary financial centers.

While Canada, Sweden, Germany, Switzerland, Jersey and Liechtenstein can show all spot-cryptocurrency ETPs and Australia and India are ready to join them, the US supervisory authorities have only approved futures-based versions, while those in Great Britain, Hong Kong and Singapore did not even allow these vehicles.

However, not everyone is convinced of the more liberal approach.

"This seems to me to be an artifact of a race down in relation to the regulation of crypto-assets in general and the regulation of registered funds that invest in such assets in general," said Ben Johnson, director of global ETF research at Morningstar Hashdex Fund.

A competing issuer described the ETF as "cool", but said that he was "rather iterative than highly innovative" and builds up on the network of the already available crypto basket exchange-traded products.

Bruno Sousa, Head of Global Operations at Hashdex, said that Dapp-Token are "structurally very different" of cryptocurrencies. Many use the Ethereum blockchain, which can contain financial assets and enables programmers to code functions for purchase and sale in smart contracts. This enables them to be used for lending, insurance, trading and stiling of assets.

"This is comparable to start-ups. You have solutions for certain market segments. If you do well, you will grow if you don't do it, you will shrink and the token will lose value," said Sousa.

hashdex was founded in 2018 and currently has an ETF in Brazil, which is $ 350 million Hashdex Nasdaq Crypto Index ETF (Hash11), which according to its own statements is the largest crypto basket ETF in the world and applies investors from private investors to macro hedge funds. It also operates a similar private fund based in the USA in connection with Victory Capital.

hashdex hopes to be able to bring similar products to the market elsewhere is dependent on the speed of the regulatory changes. "Other places move with other rhythms. In view of the current regulatory landscape in the USA, there is no clear way for a spot ETF," said Sousa.

"We generally expect the supervisory authorities to feel more and more comfortable with such structures and recognize that this is a way to shop in the market that the supervisory authority can see and touch and get in touch with the issuers," he said.

In the meantime, the introduction to Brazil hashdex "gives the opportunity to test new products and see how the public reacts".

defi11 will charge an annual fee of 1.3 percent, which is high for an ETF, but is competitive for digital asset funds, especially multi-asset baskets.

For smaller market capitalization as cryptocurrencies such as Bitcoin and Ether, the underlying tokens can be even more volatile. In the middle of a global market sales, the CF Defi Composite Index-Brazil has fallen by 44 percent since its introduction on December 1 of last year.

"This is a result of assets that are generally regarded as risk systems, from shares to crypto," said Sousa. "Crypto reacts to the regular market. The correlation is lower over the longer period, but in times of high stress this affects investors [as] they will have hands in different pots.

"This is normal. A decline of 40 percent happens with a certain frequency in crypto, but what happens is that it continues to grow," argued Sousa.

"Take a look at this with intellectual humility. This is a phenomenon that is based on huge technological progress. This is a great progress like the Internet in the 1990s."

Additional reporting by Philip Stafford