Crypto hedge funds managed nearly $3.8 billion in 2020, up from $2 billion in 2019, and are showing a taste for decentralized finance (DeFi), according to a new report from PwC and the Alternative Investment Management Association (AIMA).

Released Monday, the third annual Global Crypto Hedge Fund Report, co-authored by Elwood Asset Management, shows that 31% of crypto hedge funds use decentralized exchanges (DEXs), with Uniswap being the most widely used (16%), followed by 1inch (8%) and SushiSwap (4%).

Meanwhile, DeFi-specific tokens are on the rise: oracle service Chainlink's LINK was included in 30% of hedge fund investments, with interoperability protocol Polkadot's DOT and lending platform Aave's AAVE making up 28% and 27%, respectively.

The DeFi space has seen explosive growth in recent months, with the total value locked in Ethereum-based DeFi platforms now sitting at $60 billion, according to DeFi Pulse.

Meanwhile, some large traditional hedge funds like Steven Cohen’s Point72 are reported to be taking an interest in DeFi, as part of a strategy of setting up crypto-focused funds.

While bitcoin remains far and away the most popular asset among funds, Ethereum’s native ETH token was included in 67% of investments. Crypto hedge funds are also involved in cryptocurrency staking (42%), lending (33%) and borrowing (24%). 

There is also increased interest in DeFi from some of the more traditional financial institutions, PwC Crypto Leader Henri Arslanian said in an email.

“Whilst they may be still far from using decentralized applications, many financial institutions are trying to be more educated and try to understand the potential impact that DeFi may have on the future of financial services,” Arslanian wrote. 

Crypto hedge funds on average returned 128% in 2020 (versus 30% in 2019). The vast majority of investors in such funds are either high-net-worth individuals (54%) or family offices (30%). The percentage of crypto hedge funds with over $20 million in AUM increased in 2020 from 35% to 46%. 

Meanwhile, 47% of traditional hedge fund managers surveyed, representing $180 billion of AUM, are already invested or looking at investing in crypto, according to the report.

“The fact that we have partnered with AIMA and included traditional hedge funds for this year’s report is an indication of how fast crypto is becoming more mainstream with institutional investors,” said Arslanian. “This would have been unthinkable even 12 months ago.”