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What is decentralized finance (DeFi)?

Decentralized finance, or DeFi, provides an accessible alternative to the traditional centralized financial system. Developed on a blockchain network, DeFi enables a variety of open-source, decentralized platforms and applications for participants to communicate and execute digital assets transactions. To learn more about DeFi, read “A Beginner’s Guide to Decentralized Finance (DeFi).”

What is digital yield?

Digital yield describes DeFi strategies where periodic cash flows and price convergence are the primary drivers of return, similar to fixed income. Common digital yield strategies include yield farming and stablecoin lending. For more information, watch the “Introduction to Digital Yield” webinar.

What is the origin of DeFi?

The concept of DeFi originated in 2018 in a Telegram group chat of entrepreneurs and Ethereum developers. Three years earlier, Vitalik Buterin launched Ethereum to accommodate more complicated financial transactions, like borrowing and lending, that Bitcoin’s simple code could not process. Amidst a deliberation about Ethereum-based decentralized innovations, the developers coined the term DeFi. Read more about DeFi’s origin in “What Is Decentralized Finance?

Why is DeFi often compared to fixed income?

Fixed-income investments are known for their regular and non-varying returns that typically maintain a conservative risk approach. DeFi aims to improve traditional fixed-income strategies by offering lending and borrowing opportunities that allow individuals, rather than brokers, banks, or market makers, to provide liquidity and generate yield. To learn more, read “New Kid on the Block: DeFi Asset Classes.

What problems does DeFi solve?

DeFi aims to remedy structural problems in centralized institutions by introducing a decentralized network on which individuals can freely develop, collaborate, and transact. DeFi users control their funds with individual crypto wallets without relying on banks or brokers and can access financial services with increased efficiency and transparency. Read “My Bank Forced Me to Use DeFi” for more information.

What is yield farming?

Yield farming is a digital yield investment strategy that involves depositing funds into a liquidity pool in exchange for tokens and other rewards, such as governance (influence), pass-through benefits (airdrops and access), and interest. Individuals can sell these tokens for yield and retrieve their capital at any time. In return, the protocol benefits from token circulation. For more information about yield farming, see “Yield Farming: An Investing Strategy Involving Staking or Lending Crypto Assets to Generate Returns.”

What is layer 1 versus layer 2?

Layer 1 protocols provide the foundational framework for a DeFi network’s functionality. An example of a layer 1 protocol is Ethereum. Layer 2s operate on the underlying layer 1 structure, enabling users to improve the ecosystem’s functionality and scalability. To learn more about layer 1 and layer 2 protocols, read “The History and Current Landscape of Crypto.”

What is total value locked (TVL)?

Total value locked (TVL) refers to the number of digital assets stored in a DeFi protocol, akin to a financial institution’s assets under management (AUM). Due to the layers of development within DeFi, subsequent applications rely on the underlying infrastructure to operate. This reliance reinforces and grows the TVL, inspiring the development of varied and complementary protocols with different advantages. To learn more about TVL, read “What Is Total Value Locked?

How do borrowing and lending work in DeFi?

Individuals become liquidity providers by depositing funds into a DeFi lending or borrowing platform. Users can then borrow funds and pay interest to these liquidity providers. Compared to traditional markets, DeFi optimizes borrowing and lending by removing intermediaries (typically a bank or business) with requirements—like proof of income, bank statements, and credit history—that create high barriers to entry. Read Wharton’s “DeFi Beyond the Hype” to learn more.

What are the biggest risks in DeFi?

First and foremost, DeFi is not a regulated sector. Therefore, the protections to which investors are accustomed in traditional markets do not yet exist. Further, blockchain’s unique features present added exposure to counterparty, protocol, and governance risks. Read “The 5 Risk Vectors of DeFi” to learn more.

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An investor should carefully consider the investment objectives, risks, charges, and expenses of the Arca U.S. Treasury Fund before investing.  This and other information is available in the Fund’s prospectus, which should be reviewed carefully prior to investing. To obtain a prospectus, please call 1-888-526-1997.

Fund Risks 

You may not have access to the money you invest for an extended period of time. • You may not be able to sell your shares at the time or in the quantity of your choosing regardless of how the Fund performs. • Investors should understand that the Fund's shares are not currently listed on or available for trading through a national securities exchange or any other exchange, and a market for trading on an exchange may never be available to investors. Except for individually negotiated peer-to-peer transactions, there is currently no secondary market for ArCoins, and no such market is expected to develop. • Because you may not be able to sell your shares at the time or in the quantity of your choosing, you may not be able to reduce your exposure to the Fund in a market downturn. • An investment in the Fund may not be suitable for investors who may need the money they invested in a specified timeframe. • The amount of any distributions the Fund may pay is uncertain. There is no assurance that the Fund will maintain a particular level of distributions, nor is there any guarantee that the Fund will make distributions at any particular time. • Due to the emerging nature of blockchain use in securities transactions, the Fund anticipates that (other than monthly repurchase offers as described below) there will initially be limited to no liquidity in ArCoins due to low or no volume in peer-to-peer transactions. Investors should therefore initially expect greater price volatility in the secondary market than would be the case if the shares had greater liquidity. • The Fund will not invest, directly or indirectly, in digital assets, including digital securities. • Although shareholders can engage in peer-to-peer transactions using blockchain technology, the Transfer Agent will maintain the official record of the Fund's shareholders.

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