DeFi's Set Labs Raises $14M to Expand Crypto's Tokenized 'ETFs'

The San Francisco startup is building DeFi’s answer to the exchange-traded fund.

May 28, 2021 at 6:01 p.m. UTC
Updated Sep 14, 2021 at 1:03 p.m. UTC

Set Labs, an upstart platform for creating structured decentralized finance (DeFi) investment products on Ethereum, has raised $14 million.

Early-stage token fund 1kx and crypto venture capital firm Hashed led the round, Set CEO Felix Feng told CoinDesk. He said the Series A will help Set decentralize its protocol and grow its lineup from four to as many as 20 multicoin investment vehicles.

Think of them as crypto-native exchange-traded funds (ETFs).

Nailing the decentralization aspect could prove critical for a startup that, in Feng’s telling, has seen its protocol’s tokenized portfolios, “which are kind of like ETFs,” balloon to $400 million in value.

“The more customers you have, the more decentralized you need to be,” Feng said of a regulatory “rule of thumb” in the experimental realm of DeFi. He estimated current users around 20,000. 

Set’s plans speak to a key tension in DeFi, where projects seek to emulate traditional financial services like borrowing, lending and trading, but without all the baggage perceived to come through centralized control and beyond the reach of traditional oversight. 

“What we aim to be is the BlackRock of crypto,” Feng said, name-dropping the world’s largest asset manager.

Set’s next step

To get there, Set has homed in on portfolio development. Its protocol allows users to gain exposure to many coins, usually bundled thematically, by purchasing a single token. There’s the UNI-heavy DeFi Pulse Index, the Metaverse Index long on tokens from virtual worlds and a pair of leveraged products. 

Everything is non-custodial, Feng said, with investors’ cash pooled into one single contract.

“You can own a token, like an ETF token, that represents your stake, your share of what is in that smart contract,” Feng said, noting users can make trades, yield farm and stake within the strategy.

He intends to see more strategies listed by the end of the year.

DPI

The DeFi Pulse Index (DPI), which had a market cap around $140 million at press time, is Set’s oldest and most popular portfolio, Feng said. Set’s portfolios have spiked from $30 to $50 million in total value locked (TVL) during 2020’s DeFi summer to $400 million today.

That’s chump change when stacked against BlackRock’s $8.6 trillion under management. But crypto still pales against traditional financial markets.

Regardless, Feng is focused on growing Set Labs by staying true to its decentralized roots. He wants to build out the communities behind its two baby projects: asset management rail Set Protocol, and Index Coop, the decentralized autonomous organization (DAO) building the ETF-esque portfolios.  

Community members will gradually assume more control of the DAO through governance token distributions, Feng said. Questions over product parameters and fund allocation decisions will be put to token-weighted vote. 

He said this pursuit of sufficient decentralization helps ensure the project stays in the clear with regulators.

Mechanism Capital, Defiance, Spartan, ParaFi, Coinbase Ventures, Craft and Threshold Ventures also joined the round.

DISCLOSURE

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