0/ Many people missed the DeFi rally YTD including a number of big funds.
Some are still sitting on the sidelines wondering if valuations are already too high.

My view: we are still early in the DeFi cycle and while valuations are no longer cheap, they are not exuberant either.

1/ Many liquid funds are still heavily underweight DeFi. There is just no way to be adequately allocated to a space that has such a tiny sliver of liquidity even today much less 6 months ago.

2/ Even those that caught this early part of the cycle and have seen their DeFi portfolio grow multiple X (ourselves included) are still allocating more capital to DeFi.

3/ On top of that, we are also seeing new pools of DeFi dedicated capital being formed which will get allocated in the coming months.

4/ While some of the retail investors have caught on to the DeFi theme, many are still heavily overweight BTC, ETH and other legacy crypto assets in their crypto portfolio, many of which have dubious PMF and value accrual/capture.

5/ Meanwhile, driven by the rise in the valuation of listed DeFi assets, we are also starting to see an inflation in the valuation of DeFi assets on the private side (notably for “series A” rounds).

6/ This feedback loop will recursively drive the valuation of listed assets higher as investors weigh the relative risk reward of private markets va public markets for DeFi assets.

7/ Further, while these assets are tradable on dexes, they are still not widely available on the major centralized exchanges. The exchanges are now playing catch-up as interest and demand for DeFi assets surge.

8/ With the exception of Binance, most of the exchanges have been asleep on the wheel, while the smaller exchanges like MXC and Hop have been more aggressive. If the major exchanges do not act fast, they risk falling further behind.

9/ As a result, for mainstream retail investors in the US, China, Japan and Korea, accessing these tokens via centralized exchanges has been and is still a challenge. This is less of an issue for crypto natives who trade on dexes, OTC or have multiple exchange accounts.

10/ As more exchanges list these assets in the coming months, opening them up to more investors, this will facilitate the re-allocation of funds to these newer DeFi assets causing them to re-rate further in absolute terms and relative to legacy crypto assets.

11/ Finally, there is no “good” time to buy DeFi assets. All I know is, the longer you wait, the more painful it is going to get because there is more capital flowing into this space.