This article uses the 21e6 Crypto Fund Database to analyze how many crypto funds provide non-fiat access to crypto hedge funds.
Photo: Vladislav Reshetnyak
Table of Contents
- Most Common Stablecoins and Cryptos to be Accepted for In-Kind Subscriptions and Redemptions
- Managed Accounts (SMA) and Cayman Islands: Why are SMAs Accepting Stablecoins so Often?
- Why Do Other Domiciles Not Yet Offer Crypto-Based Fund Onramps?
Why invest in a crypto fund using a regular transfer of fiat money? Some investors would prefer to use crypto-native forms of subscribing and redeeming capital with their crypto funds.
Therefore, we analyze how many funds already offer access to crypto funds via stablecoins. Furthermore, we shed some light on why there are such stark contrasts between different fund domiciles when it comes to the stablecoin question.
Figure 1: Domiciles with the most crypto funds that also offer non-fiat subscriptions and redemptions.
1: Most Common Stablecoins and Cryptos to be Accepted for In-Kind Subscriptions and Redemptions
Funds with in-kind subscriptions either accept USDC (Circle USD) or USDT (Tether USD). Some funds accept both USDC or USDT.
The reasons for USDC’s and USDT’s popularity among crypto funds lie in their overall popularity. USDT is currently the second largest token by market capitalization [1.1]. USDC is the sixth largest token by market capitalization [1.2]. Dai (Maker), which is a decentralized, overcollateralized stablecoin at position 18 in the market-cap ranking, is not accepted by any fund [1.3]. Dai is the third largest stablecoin and the largest decentralized stablecoin. The lack of Dai support means that funds only offer centralized stablecoins issued by regular corporations at this time; funds to not accept decentralized stablecoins issues by decentralized entities.
There is only one fund that also accepts BTC, domiciled in Luxembourg and managed by portfolio managers from the UK.
2: Separately Managed Accounts (SMAs) and Cayman Islands: Why are SMAs Accepting Stablecoins so Often?
Separately managed accounts (SMAs) are the largest bucket to offer stablecoin subscriptions. The reason for this is simple: SMAs are accounts that are directly held by the investor. They are thus not pooled investment vehicles (as funds are). Each investor has their own account; there is no unified fund portfolio. The investment manager has trading access to each investor’s account. These accounts are usually with one of the large crypto exchanges, such as Coinbase or Binance. Coinbase and Binance offer funding using stablecoins. Consequently, investors can simply send stablecoins to their account to fund their SMA.
But as the Cayman Islands showcase, stablecoin subscriptions are also possible in traditional pooled accounts (ususally called “SPCs, Segregated Portfolio Companies” in the Cayman Islands). We suspect that the service providers (fund admins and custodial banks) in this domicile have already implemented stablecoin subscriptions in their service offering. We will soon talk to these providers and follow this article up with a deep-dive into how different fund service providers offer different non-fiat rails for investors.
3: Why Do Other Domiciles Not Yet Offer Crypto-Based Fund Onramps?
As alluded to before, the domicile and the regulation of a domicile is the smaller issue when it comes to the availability of crypto on- and offramping. The coverage of this service by banks and administrators is the bigger bottleneck.
The Cayman Islands is the domicile with the most crypto funds, after the USA. We have analyzed the number of crypto funds in different domiciles in a recent article on our 21e6 blog. The strong ecosystem in the Cayman Islands incentivizes the service providers to further expand their offering. As they are already working with so many crypto funds, they want to cater their needs even better and are willing to invest additional resources into crypto-friendly offers.
This correlation between a domicile’s relevance for crypto funds and the availability of crypto subscriptions, however, is not present among US-based funds. The regulatory situation in the US is not commodative with regard to blockchain companies. We suspect that funds and service providers are cautious and want to avoid additional regulatory scrutiny.
As fund service providers get used to stablecoins as a route to on- and offboard investors, more and more funds will offer this option.
We are curious whether more European providers will start to offer crypto-based subscriptions soon. Currently, European fund administrators are still cautious about offering stablecoin funding for administered funds. The Cayman Islands have a pioneering position in this regard.
The situation in the US can be expected to stay subdued; we do not expect non-fiat subscriptions to US funds to be possible anytime soon.
Fiat subscriptions are still by far the most common option for providing money to a crypto fund. About 90% of the funds in our database only offer fiat subscriptions. But we can observe that larger crypto fund domiciles may adopt stablecoin funding more willingly. As crypto funds become the norm, the onramp rails are expected to follow suit.
An exception to this are regulatory environments such as the US and China, where there is still too much regulatory uncertainty around crypto investments.
21e6 Capital is a Swiss investment advisor, connecting professional investors with optimal crypto investment products.
Please find more information about our authors on our homepage: 21e6.io
Jan Spörer is Due Diligence Manager at 21e6 and responsible for overseeing the content quality management of the 21e6 Crypto Fund Database.
Jona Hauch is an Advisor at 21e6 Capital AG.
21e6 Crypto Fund Database, cryptofunds.21e6.io
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