DeFi Revives the ‘Mullet’ to Save Itself

In this edition of the Bloomberg Crypto newsletter, surveys DeFi’s efforts to revive itself by dabbling in — of all things — TradFi.

If you can’t beat them, join them

Just a year or so ago, the decentralized-finance corner of crypto was offering an (at least on the face of it) extremely compelling proposition: Yields as high as , vastly more than what most of traditional finance could muster — not to mention your average zero-interest bank account. 

That gap has all but vanished, and with it, much of DeFi’s raison d’etre. So perhaps not surprisingly, the industry is searching for a new path. And one path has led straight to traditional finance, the very sector DeFi diehards want to render obsolete. 

Startups like Ondo Finance have started tokenizing assets such as US Treasuries which, courtesy of the Federal Reserve’s tightening, now offer substantially higher yields. Tokenization, put simply, is the process of representing traditional assets like bonds or stocks in the form of digital tokens that are housed on a blockchain. Ondo says its short-term Treasury fund, which launched in January, already has over $100 million of assets. Franklin Templeton last week said its tokenized money-market fund has seen inflows from crypto players.

A variation of that type of marriage between crypto and Wall Street is the “DeFi mullet,” so named for the distinctive hairstyle that combines short-cropped hair on the top and sides of the head with long locks at the neck. Hashnote, a DeFi asset manager founded by a former DRW executive earlier this year, has chosen this path. It allows institutional investors to sign up for a variety of funds, just like they would with a traditional asset manager. Hashnote uses different DeFi strategies, some of which rely on options, to generate returns. Where Ondo mainly targets crypto natives seeking yield, Hashnote’s products are primarily aimed at “traditional” investors with limited knowledge of DeFi.

So where do these trends leave DeFi as we’ve come to know it? The signs seem to point toward a splitting of the industry, with one branch (some are already calling it “on-chain finance,” or “on-fi”) catering to institutional money in a fully regulated environment where the end users might not even know (or care) that DeFi is running in the background. The other DeFi world would be the Wild West one we’ve come to know, where crypto bros keep offering — or chasing — juiced-up yields amid the occasional blowup.

With the Securities and Exchange Commission recently saying DeFi platforms must register with it, it’s conceivable that the second world will be very much tamed. And so we’re left facing a question that should give any self-respecting purist indigestion: Will the line between DeFi and TradFi become so blurred as to one day be meaningless?

Charting it out

Counting it out

Hearing them out

What we’re reading (and writing)

• Is the Federal Government Trying to Kill Off Crypto? (New York Magazine)
• The UK Seaside Gang That Pulled Off a $24.5 Million Crypto Heist??????????
• ????????Coinbase Insiders Sued for Dumping Stock, Saving $1 Billion
• MicroStrategy Posts Profit on Benefit Tied to Bitcoin Stash
• Reprimands Three Arrows Founders Over New Crypto Project
• Sotheby'sLaunches On-Chain NFT Marketplace for Secondary Art Sales (Decrypt)

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