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New research jointly conducted by the alternative investment Management Association (AIMA) and PwC has revealed that crypto hedge funds show a growing appetite for the decentralized finance (DeFi). Funds worth $3.8 billion were managed by the category of Crypto Hedge Funds in 2020, while in 2019, this amount was pegged at $2 billion.
The 3rd annual Global Crypto Hedge Fund report further revealed that Uniswap (16%) emerged as a preferred decentralized exchange among hedge funds managers, followed by 1inch at 8% and SushiSwap at 4%. A total of 31% of hedge fund investors have used the decentralized exchange to carry out their investments. The use of tokens related to the specific DeFi space is also on the rise, with LINK (token of Chainlink) finding favor among 30% of hedge funds. This is followed by the DOT (token of Polkadot) and AAVE (token of Aave), with a respective share of 28% and 27%.
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The findings are aligned with the explosive growth that the entire segment of DeFi has witnessed in the last couple of months. According to the cryptocurrency research and consultancy firm DeFi Pulse, the total value locked in the DeFi platform is pegged at a whopping $60 billion. Even some of the traditional hedge fund organizations such as Point72 are now mulling on making their entry into the DeFi segment through cryptocurrency-focused funds.
Bitcoin continues to dominate its popularity among the funds though Ethereum has also risen in its acceptance, with ETH now becoming a part of 67% of total investments. The crypto hedge funds have also been actively participating in the staking, lending, and borrowing processes.
The higher average rate of return related to hedge funds is also fueling their popularity among target investors. In the year 2020, investors garnered 128% of the average return on these funds, up from 30% in 2019. The main constituency of investors investing in hedge funds belongs to family offices and individuals with high net worth.
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The research reveals important insights into the category of crypto hedge funds and their growing prominence among investors. It also strengthens the previous research, concluding that the DeFi segment is emerging as the most prominent segment in the cryptocurrency space.
