WonderFi (OTC:WONDF, NEO:WNDR), previously DeFi Ventures is a leading platform enabling investors to access the exciting world of decentralized finance (DeFi). It recently listed on the NEO exchange, and is available on both $CAD and $USD markets. WonderFi has amassed a star-studded backing, including Kevin O’Leary (Shark Tank), Sam Bankman-Fried (FTX) and other top-tier blockchain-focused VC firms. Here’s all you need to know about WonderFi.
Summary
- WonderFi is developing a platform for users with no crypto experience to access DeFi (intro to DeFi provided below)
- WonderFi will holds DeFi assets on its balance sheet, enabling investors to benefit from the significantly higher yields (e.g. >4% on savings accounts vs near-0% in the market today), among other attractive offerings
- Listed on NEO (Canadian exchange) in August 2023 and has traded up ~51% since to CAD $2.50 (~$186mn market cap)
- Investment Thesis:
- Provides a simple, easy-to-access, attractive offering in the rapidly growing (but esoteric) DeFi market
- Strong management team with best-in-class strategic investors and advisors
- Significant catalysts provide upside to stock price (progress on platform, strategic partnerships, acquisitions)
- Key Risks:
- High execution risk – ambitious product offering still in development
- Existing and new competitors (e.g. Alice) developing a more attractive, more widely adopted product offering
- Increased regulation in the decentralized finance space (recent passing of 6050I) poses significant threat to DeFi in the USA
- Risks inherent in DeFi space (rug pulls, impermanent loss) may result in significant losses (mitigated by use of reputable protocols)
- Initiate at a Buy on catalysts to valuation upside (see valuation section)
- Note – all figures in CAD
Outline
- Business Model
- Introduction to Decentralized Finance
- Management and Ownership Overview
- Market Overview / Competitive Landscape
- Recent Developments / Strategy
- Valuation / Key Risks
1. Business Model
What does WonderFi do?
WonderFi is a tech company that is developing a platform (mobile and desktop) to facilitate investments in the emerging industry of decentralized finance. Its users (investors) will be able to use the platform to access decentralized protocols (think of these as tools for different investment strategies) on multiple networks (including Ethereum and Solana). Their primary offering, a high-interest savings account, enables users to earn attractive yields on low-risk products (>4% vs. the near-0% interest rate on traditional bank high interest savings accounts).
While these decentralized protocols are available to all investors without the use of WonderFi, it is a highly complex ecosystem that is difficult to learn and navigate, with scams (often called “rug pulls”) being prevalent in the space. We are actively engaged in the DeFi space, and have fell victim to scams; the risk of losing your capital with unproven protocols is often seen by investors as just a part of the space.
WonderFi aims to simplify and de-risk this process with its easy-to-use app and curated access to safe protocols, achieving an attractive offering with low-risk that offers significantly higher returns than what an investor would earn in a bank savings account.
Details on DeFi are included in Section 2, but it is important for those not in the DeFi space to understand that the space is incredibly complex and difficult to navigate, creating very significant barriers to entry to the average investor, or even a well-versed traditional finance investor. WonderFi aims to bridge this gap, through an all-in-one, highly curated platform, appealing to the average investor.
What is its product offering?
WonderFi’s product offering, its app, will provide four offerings:
| Product | Description |
|---|---|
| WonderFi High Interest Savings Account | Allows investors to earn significantly higher interest through WonderFi’s investments in low-risk products in the DeFi space |
| WonderFi Baskets | Allows investors to invest in various curated indexes |
| Swap | Exchange to swap cryptocurrencies |
| Earn | Allows investors to lend their assets to earn interest |
Our take: we expect the high-interest savings account and baskets to be the cornerstone offerings of the app. As explained above, the high-interest savings account provides an attractive risk-reward profile, while the basket enables investors to access curated baskets in the DeFi space (our view is that researching attractive DeFi opportunities is a highly technical, time-consuming exercise that the majority of DeFi investors neither have the time nor capability to do).
Given the highly developed existing space for exchanges, the exchange offering will likely not be cost effective in comparison to the leading centralized and decentralized exchanges. In addition, lending generally yields lower interests in the crypto space than other DeFi strategies including staking (detailed below), so we don’t see the Earn product being competitive with the savings account.
2. Introduction to Decentralized Finance
What is Decentralized Finance?
Decentralized Finance (DeFi) is a system by which financial products and transactions are made through a blockchain network. In short, rather than trading through a centralized entity (bank, broker, etc.), you don’t transact with an entity and rather through a “smart contract” (code between the transacting parties). As is the nature with blockchain, these transactions are traceable, transparent, and irreversible.
Investors in DeFi can earn rewards through the value of their currency appreciating, in addition to other DeFi strategies such as lending, staking, yield farming, and liquidity mining. Each of these strategies have different inherent risks and rewards, and WonderFi aims to simplify this process by providing a very low-risk product with a >4% interest. The benefit to investors is significant; they earn an attractive interest rate while circumventing the complex steps and diligence required to properly execute these DeFi strategies.
Within DeFi, there are many protocols, which are networks where investors can enter into smart contracts, and within these protocols, there are thousands of different projects and currencies, with new projects launching everyday. Given our own experience in DeFi, we know well the significant technical knowledge (coding, tokenomics) and research (team, community, roadmap, backing) required to properly diligence protocols and projects, making entering the space difficult for the average investor (and making WonderFi’s product a very attractive alternative for investors).
Current Sizing
Currently, DeFi has >$267 billion in total value locked (Source: DefiLlama), representing the sum of all assets deposited in different DeFi protocols (leading to rewards, interest, new coins/tokens, etc.). The space has grown significantly in a short amount of time, from ~$16 billion less than a year ago. We expect this space to continue to develop as retail and institutional money flows into DeFi to capitalize on the attractive risk-return.
Regulatory Space
There remains significant regulatory uncertainty, given the regulatory gap between traditional and non-traditional finance today (part of the reason why DeFi has grown). A recent example is the passing of 6050I, which makes the failure to report crypto transactions >$10,000 a felony, posing a threat to DeFi in the USA. With DeFi, the contractual party is a wallet address rather than an entity, making this bill difficult to satisfy.
3. Management and Ownership Overview
WonderFi’s management team has significant experience, including expertise from both traditional and non-traditional markets. Its CEO, Ben Samaroo and other members of the executive team were members of First Coin Capital, a cryptocurrency startup later acquired by Galaxy Digital. The management team is technically strong and well connected with relationships with securities commissions and FINTRAC (Canadian equivalent of FinCEN).
What’s more impressive is the strategic investors, who include Kevin O’Leary (Canadian investor),and Sam Bankman-Fried (founder of FTX). Its consortium of investors also includes highly reputable names in the crypto space, including Animal Capital, BIGG Digital, O’Leary Ventures, Alameda Research, and Argo Blockchain.
As per their September investor presentation, shareholdings are as follows:
| Insiders & Strategic | 22.7mn shares | 36.7% |
|---|---|---|
| Non-Insiders | 36.5mn shares | 59.0% |
| Options | 1.7mn shares | 2.7% |
| Warrants | 1.0mn shares | 1.6% |
| Total (Fully Diluted) | 61.8mn shares | 100.0% |
While the limited amount of options and warrants are positive given companies at this stage typically have more dilutive securities, the total share count has since has increased since to ~74.0mn. We are cautious about further dilution and are hopeful that the platform will be able to grow without significant further equity issuances.
4. Market Overview / Competitive Landscape
Industry Overview
WonderFi operates in an emerging space, and has few direct competitors (one being Alice Finance, which aims to provide a similar service, built on the Terra blockchain). However, we see a larger incumbent, such as Coinbase or Square creating a similar platform as a greater threat to WonderFi. This is mitigated by WonderFi’s competitive advantages below:
Competitive Advantages
- Strong institutional and strategic backing (mentioned above)
- Superior product offering: WonderFi likely has the furthest developed product, and in our research we have not come across a similar product at WonderFi’s current stage (first-mover advantage)
- Access to capital: WonderFi has strong access to capital through equity markets and eventually as the company gains users, through the debt capital markets; this is a competitive advantage compared to smaller, private companies
- Existing relationships with regulatory authorities: relationships with FINRA and securities commissions will reduce any major hurdles that will delay launch
5. Recent Developments / Strategy
WonderFi’s stated corporate strategy is outlined below:
- Build: develop WonderFi’s app
- Invest: hold crypto and DeFi assets and generate yield
- Acquire: non-organic growth to support growth and expansion
We are confident in WonderFi’s ability to execute on its first two priorities, given the experience of the team and backing. However, WonderFi’s team lacks expertise and experience in inorganic M&A, and we expect them to build out the in-house team over time, given the priority on releasing the platform as soon as possible.
WonderFi also continues to enter into strategic partnerships and investments, likely facilitated through Sam Bankman-Fried and their strategic investors. On November 8, 2023, the company announced investments in Solana and Serum. The company also has a strategic partnership with Compound Finance, a leading protocol to facilitate the lending and investing to provide yield for its users.
6. Valuation / Key Risks
Historical Valuations
WonderFi previously raised capital through several funding rounds, which are detailed below.
Strategic: CAD $0.13/sh
Seed Round: CAD $0.25/sh
Pre-Public: CAD $1.00/sh
Pre-Public: CAD $1.05/sh
Today: CAD $2.50/sh; market cap = CAD $186mn
Key Catalysts to Increase Valuation
- Demonstrated execution – progress and successful eventual launch will provide valuation upside
- Partnerships and strategic investments – through strategic investors and backing, expect partnerships and investments continue to be announced
- M&A transactions – existing relationships enable proprietary deal flow, expect shares to gain on M&A news
Key Risks to WonderFi’s Valuation
- High execution risk – ambitious product offering still in development
- Existing and new competitors (e.g. Alice) developing a more attractive, more widely adopted product offering
- Increased regulation in the decentralized finance space (recent passing of 6050I) poses significant threat to DeFi in the USA
- Risks inherent in DeFi space (rug pulls, impermanent loss) may result in significant losses (mitigated by use of reputable protocols)
This article was written by u/BreakwaterResearch.
