Apollo’s Alpha: “DeFi Is Still Strong” – Australia’s Leading Crypto Fund Manager Reveals FTX Learnings – Stockhead

David Angliss, analyst at Australia’s leading cryptocurrency investment firm, Apollo Capitalshares the fund’s regular take on what’s happening in the fast-moving and volatile cryptocurrency space.

Given the current state of the crypto market and the crypto contagion fears that continue to spread, we thought some of the best information from Apollo Capital right now might relate to the implosion of FTX.

Has Apollo been exposed to FTX and/or Alameda? The answer, says Angliss, is unfortunately yes, albeit a relatively small one.

“We had a loan on Clearpool with Alameda, and we also held FTT on FTX, so it’s likely to be zero-marked,” the Apollo analyst noted, adding, “We had less than 2% of FTT exposure in our main fund, the Apollo Capital Fund and less than 5% FTT exposure in the Apollo Capital Frontier Fund We also had exposure with a loan to Alameda in the Apollo Crypto Market Neutral Fund.

The fund manager is certainly far from alone on this point. Crypto firms and retail investors have been stung hard by an influential exchange that the vast majority of the crypto world considered one of the most robust in the space.

FTX had a who’s who of institutional and celebrity backers, multi-million dollar deals with huge sports organizations around the world, and a Super Bowl ad featuring Larry David. There were many other reasons to believe.

One of the most damaging crashes in crypto history

Generally speaking, says Angliss, the FTX black swan event and subsequent spinoffs have “reinforced the need for DeFi. And for noncustodial ownership of crypto assets.” In other words, crypto assets whose keys you control and which are not left on centralized exchanges.

“This is much bigger, in US dollars, than the Mt Gox hack, however, the Mt Gox percentage in terms of the market had a bigger impact. FTX will remain one of the most detrimental exchange crashes in the history of crypto,” notes the Apollo analyst.

Angliss told us about a recent Apollo’s blog postin which the company assesses the implications for the industry, what it has learned, and how it is redefining its strategy from here.

The main takeaways…

DeFi is still strong

“I think the market is finally starting to realize that the risk of coming back with the use of centralized lending platforms such as Celsius, BlockFi, FTX, even Coinbase, and now Genesis under fire…that’s none of it. probably not worth it,” Angliss said.

“If you’re looking for yield opportunities, it’s probably best done through DeFi, where you have custody of your own assets,” he added.

The way is open for DeFi protocols to become “the preferred method of transacting and earning,” reads the blog post, which also notes that the Uniswap DEX recently became the second largest exchange for Ethereum, beating Coinbase.

Sale of Solana

As Apollo’s blog notes, Solana (SOL) was a “core position” in Apollo’s Layer 1 alternative blockchain portfolio due to its high development activity, significant VC funding, and high total latched value (TVL).

However, Apollo Capital made the decision to divest from competitor Ethereum, for at least three main reasons: continued outages on the network; decrease in development activity; growing competition from other blockchains, such as Avalanche and Aptos, not to mention the fund manager’s favorite blockchain ecosystem, Ethereum, and its layer 2 scaling protocols.

“Apollo Capital successfully exited Solana positions in September at prices around US$30 and a TVL ecosystem of US$1.3 billion,” the company explained.

“Today, Solana’s price sits at $11 and TVL has crashed to just $290 million. Looking back, we can also see that FTX and Alameda were the main drivers of Solana’s success in 2021 and his recent disappearance in 2022.”

FTX fallout; other risks; allocate to Ethereum

Crypto investors are wondering if the worst is over when it comes to the fallout from the FTX implosion. But the problem is that the tentacles of the exchange have spread so far, so widely in the industry.

As Apollo notes, one of the main market contagion fears is the very real threat of Genesis, one of the industry’s largest lenders, becoming the next to collapse into an insolvent heap.

Known as the “Bank of Crypto”, writes Apollo, the subsidiary of the Digital Currency Group (DCG) has halted withdrawals on the platform as rumors of Genesis’ financial troubles escalate.

“If Genesis were to go under, we could look at a maximum surrender situation from there,” Angliss said. Stockhead. “If Ethereum drops to triple digits of that, really anything below US$1,000, then we would strongly consider buying at those levels.

“And if the Genesis situation were to explode,” he continued, “and the market starts to make higher lows, then we will also start looking to allocate to Ethereum.”

Bitcoin too?

“Yes, but not as much as Ethereum. “We are definitely ETH bulls and believers in the ETH-as-utility narrative. Bitcoin has its place, but relies more on its store of value thesis.

“We believe Ethereum’s utility over time will become a more compelling tangible use case that delivers more value, aided by its recent merger with proof-of-stake and the deflationary nature of its token offering. ”

What is the next step ?

To speak with Angliss on the phone, and also during the recent NFT-Festival In Melbourne, the impression we have is that, while yes, the Apollo funds had a small exposure to FTX, the risk was well managed through relatively conservative positions held throughout the year.

Positions with high levels of short-term liquidity as the market and industry have grappled with months of centralized crypto platform explosions and contagious price effects.

But, and as the company blog also notes, despite the confidence in the space, Apollo remains firm in its long-term investment thesis, especially when it comes to DeFi.

“We are actively engaging with our pipeline of early-stage projects to see where we can help them navigate these troubled waters, and are evaluating new and existing projects to deploy new capital opportunistically,” the company wrote. of investment.

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