DeFi strategies to diversify an investment portfolio

Details

Supervisors

Nsabimana, André

Faculty

Louvain School of Management

Degree label

Master [60] en sciences de gestion

Abstract

enThis thesis explores decentralized finance (DeFi) to diversify traditional investment portfolios, focusing on optimizing returns and managing risk as digital assets mature. It reviews decentralized finance mechanisms such as staking, lending and yield farming, comparing their potential annualized returns with those of traditional assets. Empirical results show that DeFi strategies can return more than 10% (even with stablecoins), with some configurations such as delta-neutral or leveraged farming reaching 30-100% APY. This contrasts significantly with historical returns for the S&P 500 (~10.13%) and gold (~8.4%), underlining DeFi's appeal for high-yield diversification. Although risks such as protocol or smart contract vulnerabilities exist, they are comparable to those of traditional finance with due diligence. The study concludes that a cautious, minor allocation (e.g. 2-5% or more) to crypto-assets via DeFi can be a valuable diversification strategy within a balanced portfolio, while acknowledging that DeFi returns fluctuate according to market conditions and platform choices.