Monthly Update - April

April was a month of two distinct narratives. At the macro level, conditions continued to improve: geopolitical tensions began to ease, institutional flows into digital assets accelerated meaningfully, and the monetary policy backdrop grew more constructive heading into May. Against that backdrop, two significant idiosyncratic events within our portfolio weighed on performance in ways that no amount of macro tailwind could offset. MN Fund closed April at -5.08% gross, driven primarily by drawdowns in Bittensor, AAVE, and SUI following protocol-level incidents that are addressed in detail below.

The headline, however, would be incomplete without context. Despite the negative month at the fund level, our volatility trading generated a 4.16% alpha return relative to simply holding the underlying assets. Bitcoin closed April up +10.34%, its strongest monthly performance since July 2025, and Ethereum gained +5.87%, supported by continued institutional inflows and an improving macro backdrop.

The Macro Backdrop Shifts

The geopolitical overhang that defined the first quarter began to lift in April. As Trump signalled openness to dialogue with a new Iranian leadership and conditions around the Strait of Hormuz gradually stabilised, oil prices pulled back from their March highs. The reduction in energy price pressure eased inflation expectations and removed some of the risk premium that had been weighing on equities and risk assets more broadly. For digital assets, which had spent March demonstrating resilience through the initial shock, the improving backdrop was a natural tailwind.

Institutional flows reflected this shift clearly. Bitcoin spot ETFs recorded approximately $2 billion in net inflows during April, one of their strongest months since launch. Ethereum spot ETFs posted $356 million in net inflows, their best month in over a year. The simultaneous return of institutional capital to both assets, despite ongoing security incidents elsewhere in the ecosystem, reflects a maturing market where long-term allocators are increasingly decoupled from short-term protocol-level noise. Bitcoin dominance remained elevated at approximately 57%, consistent with a market that continues to favour the lower-risk end of the digital asset spectrum during periods of residual uncertainty.

On monetary policy, the Federal Reserve held rates steady throughout the month. With the Warsh Senate confirmation process continuing to advance, markets began more actively pricing in a shift toward a more accommodative stance following the May leadership transition. The combination of a potentially more dovish Fed and an improving geopolitical backdrop created a constructive medium-term setup for risk assets, though uncertainty around trade policy and energy costs kept near-term conviction limited.

If you'd like to learn more about how MN Fund is positioned, you can request our factsheet or book an introductory call via mnfund.nl.

Asset Developments: Two Incidents That Defined the Month

April will be remembered in DeFi history for the wrong reasons. Total losses across the ecosystem reached approximately $651 million across 30 exploits, making it the worst month for DeFi security in recent memory. Two of those incidents directly or indirectly impacted our portfolio.

Bittensor (TAO) was the first. On April 9, Covenant AI, the operator of three of the network's highest-emission subnets and the team behind the Covenant-72B decentralised AI model, announced its departure from the ecosystem. Founder Sam Dare simultaneously sold approximately 37,000 TAO into the market and publicly accused co-founder Jacob Steeves of operating a system of "fake decentralisation," alleging unilateral suspension of subnet emissions and the use of large token sales as economic coercion. TAO dropped 25% in six hours, wiping approximately $880 million in market cap and triggering $9.1 million in long liquidations.

What followed was arguably more instructive than the incident itself. Community miners, with no central coordination, rebuilt all three affected subnets from open-source code within days. The network's Q1 revenue baseline of $43 million across 128 subnets was maintained throughout. The Opentensor Foundation responded with the "Conviction" proposal (BIT-0011), a governance upgrade that would tie subnet ownership to time-locked stake, making abrupt operator exits structurally costly going forward. Separately, both Grayscale and Bitwise filed for spot TAO ETFs in early April, with the August SEC review window remaining a live catalyst for the asset. Our view is that the incident exposed real governance risk, but the network's decentralised resilience was equally demonstrated. We are monitoring the implementation of the Conviction mechanism closely.

AAVE was the second, and larger, incident. On April 18, attackers exploited a vulnerability in KelpDAO's LayerZero bridge configuration — specifically a single-verifier setup that created a single point of failure in cross-chain message verification. By forging cross-chain messages, the attacker minted approximately 116,500 unbacked rsETH tokens, deposited them as collateral on Aave, and borrowed approximately $190 million in ETH and other assets across Ethereum and Arbitrum. Total exploit size reached approximately $292 million, and the resulting liquidity stress caused the protocol's total assets to fall by $10 billion in the immediate aftermath, briefly blocking withdrawals.

Aave's core infrastructure, however, performed as designed. The protocol's automated systems responded, markets were paused, and the governance framework was activated rapidly. Aave subsequently led a coordinated recovery effort alongside Lido Finance, EtherFi, and Stani Kulechov, mobilising ETH contributions to cover the rsETH shortfall. Estimated residual bad debt stands at approximately $177 million, with the final exposure depending on how KelpDAO allocates losses among rsETH holders. LayerZero has since acknowledged partial responsibility for the configuration failure. The incident represents a short-term setback for Aave's institutional narrative, though the protocol's crisis response demonstrated a level of governance maturity that few DeFi protocols could match. The V4 mainnet launch may face a short delay pending a thorough post-incident security review.

Fund Performance

April closed with the fund in negative territory at -5.08% gross, driven primarily by the Bittensor and Aave incidents rather than macro conditions. Both assets absorbed sharp idiosyncratic shocks that were, by their nature, difficult to fully anticipate or hedge against. Importantly, despite the drawdowns in those holdings, our volatility trading continued to generate positive returns throughout the month, producing 4.16% in alpha relative to a passive hold of the same assets. Unrealised profits across active positions remain on the book.

The broader macro trajectory remains intact. Improving geopolitical conditions, the return of institutional inflows, and a Fed transition that markets are pricing as constructive continue to support our medium-term positioning. A difficult month at the fund level does not change the structural setup we are operating within.

Outlook

Heading into May and Q2, the key variables are specific. On the portfolio side: the resolution of Aave's bad debt situation, the implementation of the Conviction mechanism at Bittensor, and the August TAO ETF decision window. At the macro level: the pace of Fed policy normalisation under incoming leadership and whether the geopolitical de-escalation in the Middle East holds. If both move in the expected direction, the setup for the second half of the year is considerably more constructive than where we began 2026.

On the regulatory front, a development that warrants close attention: the U.S. Senate Banking Committee advanced the Digital Asset Market Clarity Act in a 15-9 bipartisan vote on May 14, clearing a hurdle that had been stalled for four months. The Clarity Act is the most comprehensive piece of digital asset market structure legislation to reach this stage in U.S. legislative history, establishing a framework that would provide clearer rules for digital assets, strengthen consumer protection, support innovation, and keep digital asset activity within the United States. The bill will now move to a vote by the full Senate, followed by a vote in the House of Representatives before reaching President Trump's desk.

Meaningful hurdles remain. The bill's chances still depend on further negotiations over preventing the abuse of crypto in financial crimes and the establishment of a government ethics provision meant to limit the involvement of government officials in the crypto industry. Crypto advocates are pushing for passage before the midterm congressional elections in November, and Senator Cynthia Lummis has warned that missing the current legislative window could effectively push the bill to 2030. The clock is real.

For the digital asset market, the implications of full passage would be significant. Exchanges, brokers, and custodians would gain clearer registration pathways, and asset issuers would face more defined requirements around token distribution and ongoing compliance. Institutional capital that has been waiting on regulatory clarity would have considerably less reason to stay on the sidelines. We are watching the Senate floor process closely.

Our positioning remains disciplined: lean core holdings, active volatility capture, and selective OTC deployment where opportunities meet our criteria. April reminded us that volatility cuts both ways. Our strategy is designed to keep generating returns through both directions, and the underlying performance data from this month reflects that.

If April's events raise questions about the fund's risk framework or positioning into Q2, we are happy to walk you through our thinking in more detail. Request our factsheet or schedule a call directly Calendly.

Past performance is not indicative of future results. This content is provided for informational purposes only and does not constitute investment advice or an offer to invest. Investing in digital assets involves significant risk, including the potential loss of capital.