Market-neutral DeFi strategies are emerging as a safe haven amid crypto’s volatility and risks.
Key Takeaways
- Market neutral DeFi yield strategies aim to earn yield without being affected by price direction.
- Building a business on a market neutral foundation is crucial due to crypto’s inherent volatility.
- In the early days of DeFi, stablecoins could yield significantly high returns.
- The unique risk-return profile in crypto is based on software platform hacks, uncorrelated with traditional assets.
- Diversification in DeFi is insufficient alone to effectively manage risks.
- DeFi risk is likened to selling a put option, earning returns until a catastrophic event.
- A framework can categorize blockchain attack vectors to assess risk and diversify investments.
- DeFi’s annual default rate has decreased from double digits to 2-5%.
- Engaging with DeFi platforms requires understanding the primary risk of loss from hacks.
- The DeFi market remains structurally starved of capital despite new platforms.
- Supply and demand dynamics in DeFi will continue to favor allocators.
- On-chain trading strategies’ returns vary significantly with market conditions.
- Diversification is key in managing risk in on-chain trading strategies.
- Holding assets is preferable if they remain structurally sound and communication with the team is strong.
- The philosophy of diversification is crucial in the uncertain DeFi landscape.
Guest intro
Evgeny Gokhberg is the founder and managing partner of Re7 Capital, a DeFi hedge fund specializing in market-neutral yield strategies and on-chain risk management. He previously worked in investment management at UBS and Deutsche Bank, managing equity long/short portfolios, before transitioning to crypto in 2018 at Everledger. Re7 Capital has deployed approximately $1.2 billion in DeFi liquidity provision since its founding in 2021.
Market neutral DeFi strategies
- Market neutral strategies focus on earning yield without price direction impact.
-
— Evegny Gokhberg
- Building a business on market neutral foundations is essential due to crypto volatility.
-
— Evegny Gokhberg
- Early DeFi days allowed for high stablecoin yields.
-
— Evegny Gokhberg
- The unique risk-return profile in crypto is based on uncorrelated software platform hacks.
-
— Evegny Gokhberg
- Diversification in DeFi is not enough to manage risks effectively.
-
— Evegny Gokhberg
Risk management in DeFi
- DeFi risk resembles selling a put option, earning returns until a catastrophic event.
-
— Evegny Gokhberg
- A framework can categorize blockchain attack vectors for risk assessment.
-
— Evegny Gokhberg
- DeFi’s annual default rate has decreased significantly.
-
— Evegny Gokhberg
- Understanding the risk of loss from hacks is key to engaging with DeFi platforms.
-
— Evegny Gokhberg
- The DeFi market is structurally starved of capital.
-
— Evegny Gokhberg
Supply and demand in DeFi
- Supply and demand dynamics in DeFi favor allocators.
-
— Evegny Gokhberg
- The cyclicality of yields in DeFi impacts performance more than capital demand.
-
— Evegny Gokhberg
- Multiple layers of risk exist when holding crypto assets.
-
— Evegny Gokhberg
- Convergence of CeFi, DeFi, and TradFi is expected over time.
-
— Evegny Gokhberg
On-chain trading strategies
- On-chain trading strategies’ returns vary with market conditions.
-
— Evegny Gokhberg
- Diversification is crucial to managing risk in on-chain trading strategies.
-
— Evegny Gokhberg
- The philosophy of diversification is crucial in the DeFi landscape.
-
— Evegny Gokhberg
- The firm aims to remain flat on the year despite volatility.
-
— Evegny Gokhberg
Bitcoin and altcoins
- Bitcoin is viewed as digital gold; other crypto are software businesses.
-
— Evegny Gokhberg
- Altcoins are undergoing a cleansing process, with most expected to lose value.
-
— Evegny Gokhberg
- The crypto market resembles early Silicon Valley startups.
-
— Evegny Gokhberg
- A dual approach of top-down and bottom-up analysis is needed in crypto.
-
— Evegny Gokhberg
Investment strategies in crypto
- Investing in crypto requires balancing established businesses and speculative bets.
-
— Evegny Gokhberg
- In an unforgiving market, patience is better than frequent trading.
-
— Evegny Gokhberg
- Holding assets is preferable if they remain structurally sound.
-
— Evegny Gokhberg
- The last part of the market cycle is crucial for altcoin gains.
-
— Evegny Gokhberg
Market dynamics and liquidity
- Investors should approach trading with a clear understanding of risk.
-
— Evegny Gokhberg
- Compounding gains in crypto is more effective by holding assets.
-
— Evegny Gokhberg
- FOMO is a major destroyer of returns in the market.
-
— Evegny Gokhberg
- Current market volatility may be related to liquidity issues.
-
— Evegny Gokhberg
Market forecasts and opportunities
- There is hope for positive market movement if critical levels are held.
-
— Evegny Gokhberg
- The market shows stability and altcoin outperformance compared to Bitcoin.
-
— Evegny Gokhberg
- The current market resembles small caps versus major stocks.
-
— Evegny Gokhberg
- Investors should not panic sell during market distress.
-
— Evegny Gokhberg
Disconnect between fundamentals and price
- There is a significant disconnect between DeFi fundamentals and price performance.
-
— Evegny Gokhberg
- Liquidity is a dominant factor affecting market narratives.
-
— Evegny Gokhberg
- Lack of liquidity causes underperformance in software and crypto assets.
-
— Evegny Gokhberg
- Gold’s rise attracts attention away from marginal assets like SaaS stocks and Bitcoin.
-
— Evegny Gokhberg
Banking system and leverage
- The banking system can create significant leverage through regulatory changes.
-
— Evegny Gokhberg
- Re-leveraging in the banking system will increase liquidity and impact the business cycle.
-
— Evegny Gokhberg
- Current market conditions indicate a lack of sufficient liquidity.
-
— Evegny Gokhberg
- Gold peaks often precede Bitcoin’s performance, indicating potential market shifts.
-
— Evegny Gokhberg
Risk tolerance and investment decisions
- Risk tolerance is crucial for investment decisions, especially in volatile markets.
-
— Evegny Gokhberg
- Investors should consider a benchmark like ETH to manage risk.
-
— Evegny Gokhberg
- Higher beta assets experience larger drawdowns compared to major crypto.
-
— Evegny Gokhberg
- Investors need to be realistic about their risk tolerance and potential losses.
-
— Evegny Gokhberg
Market corrections and opportunities
- The current market correction does not indicate the entire crypto market is broken.
-
— Evegny Gokhberg
- The market could change rapidly, but a prolonged downturn is not imminent.
-
— Evegny Gokhberg
- Current market conditions should be viewed as an opportunity, not a signal to abandon.
-
— Evegny Gokhberg
- Market noise will ultimately be just that—noise.
-
— Evegny Gokhberg
Market-neutral DeFi strategies are emerging as a safe haven amid crypto’s volatility and risks.
Key Takeaways
- Market neutral DeFi yield strategies aim to earn yield without being affected by price direction.
- Building a business on a market neutral foundation is crucial due to crypto’s inherent volatility.
- In the early days of DeFi, stablecoins could yield significantly high returns.
- The unique risk-return profile in crypto is based on software platform hacks, uncorrelated with traditional assets.
- Diversification in DeFi is insufficient alone to effectively manage risks.
- DeFi risk is likened to selling a put option, earning returns until a catastrophic event.
- A framework can categorize blockchain attack vectors to assess risk and diversify investments.
- DeFi’s annual default rate has decreased from double digits to 2-5%.
- Engaging with DeFi platforms requires understanding the primary risk of loss from hacks.
- The DeFi market remains structurally starved of capital despite new platforms.
- Supply and demand dynamics in DeFi will continue to favor allocators.
- On-chain trading strategies’ returns vary significantly with market conditions.
- Diversification is key in managing risk in on-chain trading strategies.
- Holding assets is preferable if they remain structurally sound and communication with the team is strong.
- The philosophy of diversification is crucial in the uncertain DeFi landscape.
Guest intro
Evgeny Gokhberg is the founder and managing partner of Re7 Capital, a DeFi hedge fund specializing in market-neutral yield strategies and on-chain risk management. He previously worked in investment management at UBS and Deutsche Bank, managing equity long/short portfolios, before transitioning to crypto in 2018 at Everledger. Re7 Capital has deployed approximately $1.2 billion in DeFi liquidity provision since its founding in 2021.
Market neutral DeFi strategies
- Market neutral strategies focus on earning yield without price direction impact.
-
— Evegny Gokhberg
- Building a business on market neutral foundations is essential due to crypto volatility.
-
— Evegny Gokhberg
- Early DeFi days allowed for high stablecoin yields.
-
— Evegny Gokhberg
- The unique risk-return profile in crypto is based on uncorrelated software platform hacks.
-
— Evegny Gokhberg
- Diversification in DeFi is not enough to manage risks effectively.
-
— Evegny Gokhberg
Risk management in DeFi
- DeFi risk resembles selling a put option, earning returns until a catastrophic event.
-
— Evegny Gokhberg
- A framework can categorize blockchain attack vectors for risk assessment.
-
— Evegny Gokhberg
- DeFi’s annual default rate has decreased significantly.
-
— Evegny Gokhberg
- Understanding the risk of loss from hacks is key to engaging with DeFi platforms.
-
— Evegny Gokhberg
- The DeFi market is structurally starved of capital.
-
— Evegny Gokhberg
Supply and demand in DeFi
- Supply and demand dynamics in DeFi favor allocators.
-
— Evegny Gokhberg
- The cyclicality of yields in DeFi impacts performance more than capital demand.
-
— Evegny Gokhberg
- Multiple layers of risk exist when holding crypto assets.
-
— Evegny Gokhberg
- Convergence of CeFi, DeFi, and TradFi is expected over time.
-
— Evegny Gokhberg
On-chain trading strategies
- On-chain trading strategies’ returns vary with market conditions.
-
— Evegny Gokhberg
- Diversification is crucial to managing risk in on-chain trading strategies.
-
— Evegny Gokhberg
- The philosophy of diversification is crucial in the DeFi landscape.
-
— Evegny Gokhberg
- The firm aims to remain flat on the year despite volatility.
-
— Evegny Gokhberg
Bitcoin and altcoins
- Bitcoin is viewed as digital gold; other crypto are software businesses.
-
— Evegny Gokhberg
- Altcoins are undergoing a cleansing process, with most expected to lose value.
-
— Evegny Gokhberg
- The crypto market resembles early Silicon Valley startups.
-
— Evegny Gokhberg
- A dual approach of top-down and bottom-up analysis is needed in crypto.
-
— Evegny Gokhberg
Investment strategies in crypto
- Investing in crypto requires balancing established businesses and speculative bets.
-
— Evegny Gokhberg
- In an unforgiving market, patience is better than frequent trading.
-
— Evegny Gokhberg
- Holding assets is preferable if they remain structurally sound.
-
— Evegny Gokhberg
- The last part of the market cycle is crucial for altcoin gains.
-
— Evegny Gokhberg
Market dynamics and liquidity
- Investors should approach trading with a clear understanding of risk.
-
— Evegny Gokhberg
- Compounding gains in crypto is more effective by holding assets.
-
— Evegny Gokhberg
- FOMO is a major destroyer of returns in the market.
-
— Evegny Gokhberg
- Current market volatility may be related to liquidity issues.
-
— Evegny Gokhberg
Market forecasts and opportunities
- There is hope for positive market movement if critical levels are held.
-
— Evegny Gokhberg
- The market shows stability and altcoin outperformance compared to Bitcoin.
-
— Evegny Gokhberg
- The current market resembles small caps versus major stocks.
-
— Evegny Gokhberg
- Investors should not panic sell during market distress.
-
— Evegny Gokhberg
Disconnect between fundamentals and price
- There is a significant disconnect between DeFi fundamentals and price performance.
-
— Evegny Gokhberg
- Liquidity is a dominant factor affecting market narratives.
-
— Evegny Gokhberg
- Lack of liquidity causes underperformance in software and crypto assets.
-
— Evegny Gokhberg
- Gold’s rise attracts attention away from marginal assets like SaaS stocks and Bitcoin.
-
— Evegny Gokhberg
Banking system and leverage
- The banking system can create significant leverage through regulatory changes.
-
— Evegny Gokhberg
- Re-leveraging in the banking system will increase liquidity and impact the business cycle.
-
— Evegny Gokhberg
- Current market conditions indicate a lack of sufficient liquidity.
-
— Evegny Gokhberg
- Gold peaks often precede Bitcoin’s performance, indicating potential market shifts.
-
— Evegny Gokhberg
Risk tolerance and investment decisions
- Risk tolerance is crucial for investment decisions, especially in volatile markets.
-
— Evegny Gokhberg
- Investors should consider a benchmark like ETH to manage risk.
-
— Evegny Gokhberg
- Higher beta assets experience larger drawdowns compared to major crypto.
-
— Evegny Gokhberg
- Investors need to be realistic about their risk tolerance and potential losses.
-
— Evegny Gokhberg
Market corrections and opportunities
- The current market correction does not indicate the entire crypto market is broken.
-
— Evegny Gokhberg
- The market could change rapidly, but a prolonged downturn is not imminent.
-
— Evegny Gokhberg
- Current market conditions should be viewed as an opportunity, not a signal to abandon.
-
— Evegny Gokhberg
- Market noise will ultimately be just that—noise.
-
— Evegny Gokhberg
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