Decentralised Finance

Market Insights Feb 04, 2021

Decentralised Finance is booming

2020 and beginning of 2021 have been all about Decentralised Finance and its revolutionary potential to reshape finance. DeFi is synonymous to the establishment of autonomous, decentralized enterprises that will be pivotal to the future of our economies.

DeFi markets are now showing explosive growth: while it took over two years and a half to reach $1billion in total value locked as of February 2020, it then took under a year for the industry to grow to $29 billion. This rapid growth is likely to be attributed to the yield farming trend popularised in 2020, in which DeFi protocols offer token rewards to incentivise liquidity providers on their platforms.

An example of decentralised exchange: Sushiswap, a fork of Uniswap

Uniswap (launched in November 2018) is a decentralised protocol for automated liquidity provision on Ethereum, allowing users to trade cryptocurrencies without the need for a central operator administrator. Instead of matching individual buy and sell orders, users can pool together two assets that are then traded against, with the price determined based on the ratio between the two.

SushiSwap was launched in September 2020 as a hard fork of Uniswap to add additional features. The primary difference between these two exchanges is that SushiSwap has a token (SUSHI) and incentives for liquidity providers. SushiSwap promises to be more investor-friendly, more secure and more efficient than its parent protocol. Investors can lend their crypto to liquidity pools and earn tokens and fees as rewards. Additionally, these investors continue to receive rewards even if they stop investing in the liquidity pool, which is its biggest advantage.

Hard forks are backward-incompatible software updates. Typically, they occur when nodes add new rules in a way that conflicts with the rules of old nodes. New nodes can only communicate with others that operate the new version. As a result, the blockchain splits, creating two separate networks: one with the old rules, and one with the new rules.

Uniswap has reached over $30 billion in monthly trade volume in January, according to The Block Research. In all, the DEX ecosystem reported more than $60 billion in monthly trade volume, led by Uniswap. SushiSwap reported $13.48 billion in monthly volume.

SushiSwap was founded by an anonymous group called Chef Nomi, along with co-founders, Sushiswap and 0xMaki, also known as just Maki. Between them, they handle SushiSwap’s code, product development and business operations. More recently, de facto ownership of SushiSwap was passed to Sam Bankman-Fried, CEO of derivatives exchange FTX and quantitative trading startup Alameda Research.

Trakx’ offering on DeFi

Investors can choose to invest directly into DeFi tokens or may prefer one of the thematic indices offered by Trakx. The advantage is to get an exposure to thematic DeFi markets through a selection of coins with largest market capitalisation and highest liquidity.

The crypto instruments developed by Trakx have similar characteristics to ETFs (Exchange Traded Funds). Among the most popular thematics, investors can get exposure to DeFi:

  • Top10 DeFi  index replicates the performance of the 10 leading Decentralised Finance ("DeFi") tokens available on Ethereum.
  • Top10 Ethereum index replicates the performance of the 10 leading digital assets issued on the Ethereum blockchain. Both Decentralised protocols and centralised exchanges tokens are represented in the index.
  • Lending index replicates the performance of Lending tokens from blockchain-based applications. Those enable digital assets owners to earn interest on their holdings. Some lending protocols support the development of financing applications or stablecoin mechanisms. As part of DeFi, Lending protocols have high potential to disrupt the traditional banking system. They aim at reducing transaction costs and disintermediating, involving smart contracts, computer programs intended to be automatically executed on the blockchain when the conditions are met.

About Trakx

Trakx offers sophisticated crypto investment strategies for institutional investors and professional traders looking for alternative investments with high potential and decorrelation from traditional investments. We provide digital-asset index products which enhance portfolio diversification with reduced fees. Our platform offers the compliance, custody and liquidity required by large investors.

Please contact Laurent at Trakx for additional questions.

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Caroline Jacquard

Seasoned marketing manager with 15+ years of experience in the financial industry: traditional finance, alternative investment and digital assets. Advisor