In fact, we recently just wrote about crypto flash loans, which were a decentralized way to lend money to arbitrage coin prices.
Now, the Bitwise DeFi Crypto Index Fund marks the first index fund that offers exposure to companies and securities involved in decentralized finance, or DeFi. Decentralized lending is the lending of money to one another without the involvement of a third party.
The trend has "boomed in use," according to Bloomberg.
Bitwise's Matt Hougan says the fund will help to smooth out some of the risk in picking names in a new space: "There's going to be issues, not everything's going to work out, there's probably even going to be some blow-ups, but you want exposure to the theme. So a diversified, index-based approach can make all the sense in the world. You don't have to monitor it, the index rebalances on a monthly basis, you don't have to watch to see what new hot asset is emerging."
And several names in DeFi have already blown up, including one exchange called SushiSwap, which saw its creator cash out only after luring "hundreds of millions" in user funds to it.
But U.S. dollar value involved in DeFi has rocketed - and is now up to $40 billion from about $11.6 billion in late November. Major crypto investors like Mike Novogratz are optimistic about DeFi's promise going forward. The new fund has an expense ratio of 2.5% and its holdings include Aave, Synthetix and Uniswap.
Recall, in writing about flash loans last week, we profiled the new service where borrowers can very quickly take collateral free loans from lenders and use the proceeds for whatever they want, before quickly paying the loan back - sometimes in seconds. The most popular use for these loans has been arbitraging coin prices on different crypto exchanges, according to Bloomberg. But what makes these loans different is that they are "bundled into the same block of transactions being processed on the Ethereum digital ledger and are executed simultaneously".