We asked crypto influencers, veteran
traders, and VC fund founders to share their top tips, essential research strategies, and
more. In this article, we speak to ParaFi Capital managing partner Ben Forman.
Ben Forman is the managing partner of San
Francisco-based ParaFi Capital, a fund that invests in blockchain technology and decentralized
finance (or DeFi) markets. He founded ParaFi in 2018 after a decade
of working in traditional finance — focusing on private equity and credit markets — at major
firms like KKR and TPG. “Outside of Bitcoin as a non-sovereign store of value, DeFi is the
main area of the blockchain space that has real product-market fit, real users, and real
traction,” he says. “Non-sovereign, uncensorable financial services is where we're
focused.”
Take the long view
Especially when it comes to Bitcoin, Forman
recommends investing amounts you can afford without trying to time the market. “Trying to
predict where the prices will be in a week or a month just isn't a great use of energy,
in my experience,” he says. “I've been investing in crypto since 2013, through multiple
bull and bear cycles. I believe virtual assets have a
place in everyone's portfolio — it's just a matter of how you want to size that
exposure.”
DeFi demystified
DeFi allows for novel financial products like
flash loans and quick, cheap, cross-border
transfers of value. Forman believes DeFi’s big themes — faster, cheaper, greater
accessibility— will help it to transform the financial industry. “All the 'ing
verbs’ of finance are what we’re looking at,” he says. “Lending, borrowing, hedging,
exchanging, indexing, robo-advising. In traditional capital markets, all those things have
friction and middlemen extracting fees.”
Experience is the best teacher
Some crypto concepts can be difficult to
grasp in the abstract. Forman recommends putting aside small sums and trying a few DeFi apps
for yourself, using a crypto wallet and browser such as Koinmex Wallet, “...just start using applications. When
you swap between two tokens on [decentralized exchange] Uniswap, you get a feel for it. Or
when you deposit stablecoins to [lending protocol] Compound and start
earning a dollar-denominated yield without any kind of direct counterparty risk, that’s really
interesting. That's when the lightbulb goes off.”
Embrace the rabbit hole
A huge amount of information is available to
all crypto investors. Forman suggests visiting DeFi Pulse — a website which ranks protocols by
the amount of capital that is “locked” into them at a given time — and clicking on
interesting-sounding projects to see what they do. “At any given time I have, like, 20 open
browser tabs full of articles I need to read,” he says. “Each post leads to another post,
which leads to another one — and you eventually end up on this journey of understanding.”
Dive into the data
One of the advantages of DeFi (at least for
tech-minded investors) is the transparency afforded by blockchain. “You can look at
applications and see, in real time, how many people are using them, how much they're
using them,” Forman says. “So if it's a decentralized exchange, you can see how much volume is flowing through
each day, and try to measure adoption and usage in real time.”
This story has just begun
Forman sees huge opportunity for crypto to
make finance cheaper and more accessible — or, as he puts it, “an Amazon-like experience for
money.” He also notes that these tools won’t always require specialized knowledge to use.
“When you send an email, you don’t need to understand how SMTP works,” he says. “Or if you’re
browsing a website, you’re not thinking about HTTP. It's all abstracted away. We’re
entering a world where finance and capital markets will run through blockchains. But
we're not going to have to think about blockchains.”