Introduction

The cryptocurrency market exhibits a cyclical nature, characterized by distinguishable super-cycles. Each super-cycle, analogous to traditional economic cycles, can be divided into four phases: growth, peak, decline, and bottom. During these cycles, crypto asset prices typically surge to historical highs, then decline from peak levels before eventually recovering and advancing towards new historical highs.

The 2012-2015 cycle was driven by the proliferation of cryptocurrency exchanges and wallets, along with the emergence of Ethereum. The subsequent cycle (2016-2018) was fueled by the ICO wave and early developments in decentralized finance (DeFi). The third cycle (2019-2022) has been propelled by the expansion of the DeFi ecosystem and the entrance of institutional players into the cryptocurrency market.

Further growth in decentralized applications, particularly DeFi, could serve as the next major driver. The maturation and increased reliability of public blockchains are expected to attract more retail and institutional users, drawn by the advantages of open finance. The convergence of decentralized financial applications with traditional corporate structures, particularly through revenue distribution to governance token holders, could spark a new DeFi boom.

Walled Fund I & II are positioned to capitalize on this anticipated growth in the decentralized application market, with a focus on revenue-generating governance tokens in decentralized applications.

Asset selection

Funds target DeFi applications that either currently generate income for their token holders or have the potential to adopt such a model, as well as the underlying smart contract networks (public blockchains) on which these applications operate.

Fund are managed on the Enzyme platform, ensuring minimal trust requirements between participants and managers while maximizing operational transparency. The Enzyme platform’s framework restricts the fund’s asset selection to those that are either natively traded or wrapped on the Ethereum network.

Projects are evaluated based on key metrics, including MC/TVL (1), P/F (2), P/S (3), P/B (4), and P/E (5), with a focus on identifying relatively undervalued opportunities. These projects are then subjected to a comprehensive risk assessment, covering smart contract risks, counterparty risks, market risks, and, where applicable, oracle risks.

Only undervalued projects that satisfy the fund’s risk criteria are eligible for inclusion in the portfolio.

Portfolio distribution

Funds follow a buy-and-hold strategy. After the initial portfolio formation, asset shares within the portfolio may fluctuate in value due to price movements, but the quantity of each asset remains unchanged. The fund may only rebalance its portfolio under two conditions, with certain exceptions detailed later in this section.

The initial portfolio is constructed using a value-weighted approach with exposure limits—a conventional method in passive asset management where the allocation of individual projects or sectors is determined by market capitalization but capped at specific thresholds.

Under the buy-and-hold strategy, funds only adjusts its investment in a project (in terms of token quantity) upon the final exit from that investment. The fund operates with a 5-year investment horizon.

Exceptions that could prompt an early exit from an investment include unacceptable levels of smart contract, counterparty, market, or regulatory risks. Proceeds from early exits are reinvested proportionally within the same asset category.

Beyond the outlined rebalancing reasons, the number of assets in the portfolio is expected to grow at varying rates through passive income.