Trovio Group, one of Australia’s leading asset managers, just told crypto winter to get lost by launching a new US$35 million crypto fund, dubbed the Trovio DeFi Fund.
Essentially, the fund will leverage the wild world of Decentralised Finance (DeFi) to give wholesale investors — those with more than $500k to their name — access to yield-generating crypto protocols.
The Fund is powered in partnership with global wealth platform Yield App, a crypto earning platform with more than 90,000 users and US$200 million under management.
To get a better idea of where the new fund is headed, The Chainsaw sat down with Tim Frost, the founder and CEO of Yield App and Lucas Kiely, the company’s Chief Investment Officer.
Kiely said that the new DeFi fund has a strong focus on capital preservation and uses a series of advanced analysis tools to protect the portfolio from market volatility.
“It’s hard to do due diligence on people in DeFi. There’s no third party to run background checks, so we have to run all prospective DeFi protocols through a rigorous vetting process.”
To this point, Lucas said that Yield App’s analysis tools use a 135-point risk process that focuses on four key areas of security assessment: smart contracts, platforms, counterparties and financial and credit risk.
The risk analysis system then spits out an alphabet rating, ranked A to Z, alongside a measurement that notifies the team of the total amount of liquidity in the lending pools. All of this works to inform the fund of whether or not to proceed with an investment.
“We set extremely high security standards that have to be met before we deploy capital,” Julan added.
Frost weighed in saying that the new Trovio DeFi fund would be generating much of its yield from DeFi protocols that have already proven capable of “standing the test of time”. Frost added that they have a specific focus on long-standing, secure lending protocols like Aave (AAVE), Compound (COMP) and Curve (CRV) which all generate varying amounts of yield.
For example, the now-defunct Anchor (ANC) protocol that promised to deliver 20% returns on Terra Money’s UST stablecoin was flagged by the team’s risk analysis system in November of last year.
“We never touched Anchor because it failed almost all of our processes,” he said.
Ultimately, Lucas says that the fund approaches investment in DeFi in a way that “doesn’t force us to do silly things with other people’s money”.
Trovio Group formed late last year when Sydney based digital asset manager TCM merged with tech development company Trovio, creating a new organisation with a valuation of AU$200 million.
The risks of DeFi
While the unregulated nature of DeFi can deliver some impressive yields to traders with an appetite for some risk, as well as providing unique opportunities to everyday people for lending and borrowing — there’s no hiding the fact that the industry is teeming with actors that are simply there to make a quick buck. The recent Mango Markets exploit is a poignant example of this.
In the second week of October a hacker named Avraham Eisenberg managed to drain the Solana-based DeFi platform Mango Markets for an eye-watering US$114 million. He then gamed the governance system to return little more than half of the stolen funds while keeping US$47 million for himself.
This is why real, thoughtful risk management in DeFi is essential to the future of the industry. By vetting protocols properly, firms are increasingly able to gain exposure to consistent, long-term returns.
Another leading project with some impressive security credentials in the DeFi space is Australian project Block Earner. While the Trovio DeFi fund is aimed more broadly at wholesale investors, Block Earner aims to bring DeFi yields to Aussie retail investors by letting them earn yield on Australian Dollar (AUD) deposits.
At the time of writing Block Earner offers a 7% yield product to everyday investors who deposit AUD onto the platform, which sort of beats the average 2.5% interest rate on a traditional savings account by a long shot.