How DeFi could challenge the ETF sector

Philipp Pieper from Swarm Markets

Brazilian asset manager Hashdex's decentralized finance (DeFi) exchange-traded fund (ETF) began trading in Brazil on February 8th. It’s the first ETF based on tokens generated by DeFi protocols and signifies the coalescence of two of the greatest innovations in financial markets over the past 30 years - crypto and ETFs.

ETFs were revolutionary in the early 1990s as correlated assets could be grouped together and traded as a single financial product, for the first time. This meant greater diversification for people’s investments who could follow trends from different markets, sectors and geographies instead of having to choose individual assets. Whilst the Hashdex DeFi Index ETF gives legitimacy to the emerging DeFi sector, the opportunity for DeFi in this context has the potential to go much further. In the same way that ETFs were designed to group correlated assets together, DeFi can take this one step further and challenge the composability of these investment vehicles, putting users…