Print PDF
Digital nugget - investing for growth or income scaled

Digital Nugget: Investing for growth or income – crypto wins on both counts

Digital Nugget

Investing for growth or income – crypto wins on both counts

Investors have been attracted to crypto assets for the high upside potential and the tremendous growth opportunity of the new technology. But while zero and negative interest rates have become commonplace for deposits in most major fiat currencies, cryptocurrency holdings can increasingly be structured to offer a yield in addition to the exposure to growth.

As the debt based economic model is fracturing and central banks seek to provide fuel by keeping interest rates artificially low, cryptocurrencies are increasingly evolving to apportion real economic benefits to holders also in the form of yield.

Income (in addition to gains from price increases) may be earned on digital asset holdings in the following ways: 1/ staking, 2/ liquidity provision, 3/ lending, 4/ profit sharing tokens.

  • Staking for income involves committing tokens to validators on proof-of-stake chains, for which a fee is paid to the token holder.
  • Liquidity provision involves locking up tokens to provide capital reserves to decentralised exchanges/automated market makers in return for a share of transaction fees and/or receiving tokens.
  • Lending platforms share the interest earned on loans with the tokenholder, and may also offer other rewards such as distributing governance tokens.
  • Profit sharing tokens send income from revenue generating applications to tokenholders.

Although holders of digital assets can engage in the above activities directly, this requires time, effort and expertise, so various services are offered that aim to help maximise token holders’ income – such as staking-as-a-service or staking pools such as Rocket Pool, yield farming or liquidity mining such as Curve or Uniswap, lending pools such as Compound, as well as attaching income to crypto banking and investment products. Some of the yield generating methods carry a risk of loss, others do not.

Income from staking and revenue sharing can only ever be positive. Lending may involve losses in theory but in practice this risk is very small as loans tend to be fully collateralised or even overcollateralised. Liquidity pools carry a risk of loss if the price of the assets traded moves adversely in a significant way – the risk depends on the correlation between the assets in the pool, and in some cases the risk is very small (eg stablecoin only pools).

There is also a risk of hacks and bugs in the code used to execute the income generating activity – for mature projects this risk can be negligible, but smart contract risk can be an issue especially in the case of younger, smaller DeFi projects.

Disclaimer

This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.

Read next article

Local restrictions – Provision of cross-border services

It looks like you are using a computer with an IP address located outside of Switzerland.
If you are located in Switzerland, please click “Continue” to access the Sygnum Bank AG (Sygnum) website.

If you are not located in Switzerland, please read below.

This website and the information contained herein are addressed solely to persons residing or domiciled in Switzerland.

Sygnum is a regulated bank supervised by the Swiss Market Financial Authority (FINMA). The products and services on this website are authorised in Switzerland. Sygnum cannot promote its products and services in other countries where it is not authorised by the supervisory authority of that country to do so.

If you click on “Continue” to visit this website, you confirm that you have read and understood the above and you are visiting this website on your own initiative without any active promotion or solicitation from Sygnum.

RETURN CONTINUE

Investor qualification

The following content is available to qualified investors. Please confirm your details below to visit this page, or please see our other digital asset updates here.

Qualified investor - As defined in Art. 10 (3) ff. of the Swiss Collective Investment Schemes Act. In particular, natural persons who have the knowledge required to comprehend the risks of the investments based on their individual education and professional experience or based on comparable experience in the financial sector and hold liquid assets of at least CHF 500,000.

A US Person is defined as (a) an individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organised under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income taxes regardless of whether such income is effectively connected with a United States trade or business.

Disclaimer:

The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorization or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

Mandatory fields

Security alert

Stay alert to fraudulent communications. Sygnum will never post messages on social media or private messaging applications regarding Sygnum banking access or logins. If you have concerns, contact us.

Close