7 DeFi protocols for retail investors
- Former commodities trader Jean-Marc Bonnefous heads crypto asset manager Tellurian Capital.
- His company uses long-short strategies to target 50% returns at a 10% downside risk.
- Bonnefous has shared seven DeFi protocols that he is looking at right now.
Jean-Marc Bonnefous approaches cryptocurrency as a commodities veteran for 20 years. And he sees parallels between digital assets and the growth of this industry in the early 2000s.
“I think we’re probably at a similar stage to the very early 2000s in commodities, where people are starting to realize that it’s more than a specialty company, that it can have a case of. much wider economic use, ”the Frenchman said. Managing Partner of Tellurian Capital, Insider said in a recent interview. “The biggest players come in with serious money to make it evolve in a more industrialized way.”
“At the end of this phase, you had commodities in the portfolios of most retirees,” he added. “It’s not impossible that you will see this with crypto in five to ten years.”
Bonnefous was previously responsible for commodity derivatives at the French bank BNP Paribas. He started investing in digital assets in 2014 and started Tellurian in 2015. Now he’s aiming for $ 150 million in fundraising for a new crypto hedge fund.
Tellurian’s hedge fund will focus on making crypto more palatable to large investors with lower risk appetites. Cryptocurrencies have been volatile this year – bitcoin, for example, saw its price double to $ 60,000, before halving and then doubling again.
“Large hedge fund recipients will not invest in something with more than a 10-15% monthly drawdown,” Bonnefous said. “Crypto is not investable for them from a long point of view only, as it can lose 30% in a month.”
“We’re trying to generate a ‘smart alpha’, working on the control of draws with our trading infrastructure, versus just long exposure to an asset where you get all the ups and downs,” he said. added.
Insider told Bonnefous about its own low risk, 50% return investment strategy, as well as DeFi protocols that retail investors can use to access more sophisticated crypto products.
Tellurian’s investment strategy
Tellurian achieved net returns of 350% last year, but Bonnefous said the long-term goal was to stabilize drawdowns, even if that meant lower returns.
” I will not tell [350% returns] is necessarily something that is repeatable, ”he told Insider. “In our case, I think it’s reasonable to accept that there will be a return of over 50%, with a downside of 10% – that’s a five-to-one target.
Bonnefous’ hedge fund pursues these returns using a “long-short” trading strategy. Tellurian uses quantitative analysis to assess which tokens are undervalued or overvalued, then buys the former while “short” or selling the latter.
But it is difficult for retail investors and small traders to replicate these strategies because they cannot short sell bitcoin and other cryptocurrencies.
“I really have to stress that this kind of strategy is not accessible to retail investors, what they have at their disposal are mainly long only products,” said Bonnefous. Internet and buy coins through Coinbase or Kraken. “
DeFi apps are a way for tech savvy investors to access “fancy products” that could reduce their downside risk. DeFi, or decentralized finance, makes financial products available on a blockchain so that they are directly accessible to any investor. Bonnefous said he is monitoring seven protocols at the moment.
7 DeFi protocols
Bonnefous pointed out Aave, a leading DeFi platform where users can lend and borrow different cryptocurrencies. Aave was founded by Stani Kuchelov in 2017 and currently holds around $ 14 billion in assets. The platform’s native token rose from less than $ 100 to a peak of $ 630 in May, but has since stabilized at the $ 300 level.
Beyond Aave, Bonnefous has grouped its chosen protocols into three groups: derivatives, asset management and what he called community accelerators.
Derivatives derive their value from the underlying assets – in this case, different cryptocurrencies. Trading in derivatives allows investors to access specific markets and hedge against risks.
Bonnefous has named two derived DeFi protocols to watch: Synthetix and dYdX. The first is an exchange of “synths”, which are derivative tokens for different cryptocurrencies. The latter allows investors to trade perpetual contracts, which are derivative contracts with no expiration date.
Another route to DeFi is asset management apps. Investors can use these protocols to create and trade wallets, thereby creating baskets of particular cryptocurrencies.
“There are a number of protocols that can provide more sophisticated risk profiles – such as Balance, where you can go in and use their protocol to create an index portfolio, ”Bonnefous said, referring to the automated portfolio manager. He quoted Define the protocol and Coop Index than other apps to watch out for.
Finally, Bonnefous underlined Colony, which he helped develop on the avalanche blockchain, as a community accelerator that should be on the radar of retail investors. Colony is a venture capital crowdfunding platform that supports crypto projects.
However, Bonnefous expressed some reservations about DeFi, highlighting the high barriers to entry and a lack of regulation. Like most parts of the crypto space, DeFi is currently unregulated.
“DeFi is not always easy to access because there is a lack of knowledge,” he told Insider. “You have to be proficient in using a wallet, it’s not always intuitive for non-technical clients.”
“This barrier to entry is largely the rigidity of entering the DeFi world,” Bonnefous added. “There are also concerns about whether investors are investing their money in a regulated and safe ecosystem.”