Novel decentralized finance (DeFi) protocol Neutrl aims to bring a hedge fund trade — once limited to sophisticated investors — to the masses in the form of a crypto token.
The protocol is launching its NUSD “synthetic dollar” token, designed to generate returns by arbitraging discounted altcoin deals in over-the-counter (OTC) markets, the team told CoinDesk in an exclusive interview.
Neutral also raised $5 million in seed funding led by digital asset private marketplace STIX and venture firm Accomplice. They were joined by Amber Group, SCB Limited, Figment Capital and Nascent alongside a range of crypto angel investors including Ethena founder Guy Young and derivatives trader Joshua Lim of Arbelos Markets, recently acquired by FalconX.
Tokenized hedge fund strategy
Neutrl is the latest entrant to the rapidly growing roster of protocols that offer hedge fund-like investment strategies wrapped into a token with a stable price, often called “synthetic dollar.” $6 billion DeFi protocol Ethena spearheaded the trend, offering yield to token holders via holding spot cryptos and shorting perpetual futures, farming the funding rate.
Read more: Resolv Labs Raises $10M as Crypto Investor Appetite for Yield-Bearing Stablecoins Soars
Neutrl’s structure is built around buying locked altcoins at discounts in private markets, then hedging exposure with perpetual futures. For example, a trader might acquire Solana’s SOL or Avalanche’s AVAX at a 20% discount from a foundation and simultaneously open a short position for the token. The return comes from the price gap, not market movement.
This is a popular hedge fund investment strategy producing high double-digit yields to sophisticated investors who don’t want to take directional bets on crypto prices, Neutrl co-founder Behrin Naidoo explained in an interview.
But, instead of managing these trades manually, Neutral users can hold a single token—NUSD—that encapsulates the strategy, opening access to a broader set of investors, he said.
With a flood of altcoin unlocks over the next few years, Neutral estimates that there’s a $10 billion market for locked up tokens. This offers an attractive yield opportunity for investors, especially now when crypto yields in decentralized finance compressed to multi-year lows, Naidoo said.
Neutrl is targeting to grow to $2 billion in assets in the two years, he added.