The crypto-space has advanced far in the last dozen years. The days when miners worked on gambling computers in their cellars – more often than not in China – are so recent that it does not even evoke nostalgia.
But the game has completely changed. To begin with, not all characters are exploited anymore. While the evidence-of-work consensus protocol on which mining is based is still a major consideration, other ways are now available to maintain a blockchain’s reliability. Proof of importance opens up a whole new paradigm for optimizing returns.
Meanwhile, technology has advanced, processes have matured, and not insignificantly, China penalized itself in May when it struck bitcoin mining. Today, mining is worldwide and the United States confirms its leadership in this new industry. It can also be said that strike also found a home in the US
Signs of that growing sophistication are not hard to spot and often take the form of higher returns or reduced risk. Miners consolidate their operations into teams, and those teams sign on to pools. Full pay per share, a protocol for miners to share in pool payouts, has evolved into a valid hedge against individual dry times. Meanwhile, the process of determining when and how much crypto should be converted into fiat currency has become automated and auto-liquidation is now the rule.
Foundry, the Digital Currency Group subsidiary that provides US-based capital access to crypto investors and operators, is in a position to know how to blend crypto’s decentralized nature with America’s highly regulated and highly transparent market to maximum effect. . (Digital Currency Group is also CoinDesk’s parent company.) Over the past year, it has developed a partnership with the leading trading platform Genesis, also a DCG company, to offer clients new ways to improve their capital flows.
“There are a lot of opportunities left on the table and together we can help earn it through our customized approach,” said Foundry CEO Mike Colyer.
When FiDi Goes DeFi
The financial districts of New York, London and Singapore may seem unlikely places to find the future of decentralized finance, and yet this is the case. Heritage institutions are increasingly sophisticated players in the crypto space. As these old school fees flow in, and portfolio managers realize that digital assets have the same market dynamics as stocks and exchange traded funds, more and bigger brains are finding new ways to earn returns on them. Foundry and Genesis made sure they had those skills in-house as demand began to increase.
When financial engineering hits the blockchain, money is harvested in both mining and strikes. By itself, mining has led him to at least two sources of found value:
- Crypto-supported loans. It should come as no shock that some days it’s better to trade in something other than crypto. That said, people do not like to share some of their digital assets because there is no indication when markets will suddenly turn around and prices will rise to new heights. Therefore, it’s great to keep your crypto – especially bitcoin because of its liquidity – but use it as collateral to take out a loan. The proceeds of that loan can therefore be used to pursue any number of short-term investments.
- Derivatives. According to the World Bank, about $ 60 trillion worth of shares are traded annually. However, the Bank for International Settlements reports that the annual volume of equity-linked, exchange-traded contracts is a steady $ 15 trillion per year. In other words, just the prospect of buying or selling a stock at a strike price within a time window is worth a quarter of its price. It did not take long for crypto enthusiasts to apply that logic to this new asset class.
Lending, by the way, is a two-way street. Bitcoin Core miners can place their coins as collateral to borrow against to mitigate the effects of price declines. However, they can also lend their BTC to counterparties to produce returns to help them cover expenses or invest in adding more production capacity.
Derivatives, mostly futures and options, have a reputation for being highly speculative, but this is largely because people only hear about them when they go wrong. On a daily basis, financial institutions and corporate treasuries do many thousands of such transactions every day. When done correctly as a regular course of business, the intent of derivatives is to mitigate risk by mitigating a position through a clearing hedge. Most derivatives are insurance policies, not casino tables.
“Institutions can hedge their bitcoin exposure and offset some of that risk by trading in futures and options,” says Genesis CEO Michael Moro. “As the crypto-industry continues to mature, it becomes clear that established financial services providers need to be in it. However, prudence dictates that anyone entrusted with the deposits of others uses strategies that are responsible for the price volatility of the underlying assets. ”
Genesis and Foundry see at least one other possible way to make passive income with crypto.
- Strike. An agreement to lock in your crypto possession is essentially the same as giving a loan to a stock exchange. Although any interest rate quoted here would be rapidly obsolete, it is safe to say that strike usually earns higher rates than money market accounts, deposit certificates and certainly savings accounts.
Strike has the distinction of being less risky than lending, which in turn is less risky than trading derivatives. It also requires the least mindshare. Account holders can only retain their positions and earn returns. And while derivatives and lending are primarily intended for institutional investors, strikes are also frequently used by retail crypto enthusiasts.
The biggest shortcoming of strike is that it does not lend to all cryptocurrencies. Bitcoin and other proof-of-work coins do not lend themselves to strike. It’s more for stable coins and such proof-of-play tokens like Cosmos or Polkadot. When Ethereum’s long delayed switch from PoW to PoS is complete – and that day seems to be coming soon – strike will also be another way to unlock its value.
Institutions use strike rewards, combined with derivatives, to create a more sophisticated portfolio and enhance their upside potential. The either / or choice is a false dilemma in this case.
Pull it together
While there are many options available to institutional investors to access and trade tokens, the value proposition for Foundry and Genesis includes a partnership designed to seamlessly connect these adjacent processes.
“If you want to share with us but do not yet have the tokens, Genesis can help you make over-the-counter purchases,” says Colyer. “Then you can put those in Genesis’ custody to earn a return on it by sticking with Foundry.”
In addition, the Foundry-Genesis Alliance lends itself to providing gloves services that financial institutions can use to offer the same activities under their own banner. This can be a particularly attractive feature given the current upward pressure on interest rates.
Ultimately, however, institutions want to know that they are not just swapping one set of risks for another. Operations such as this alliance offer a number of mitigation strategies. To reduce the risk of capital loss, the investor can choose to perform his own custodial duties or to delegate them to any top-level custodian, of which Genesis is one. Genesis incidentally offers a cold-wallet solution, for which private keys are highly secure and meticulously secured in accordance with strict regulatory standards.
Data security is maintained by Foundry’s data centers, which are some of the most resilient and fault – tolerant in the world. Their geographical diversity only contributes to the uptime.
While security – not to mention privacy – is important, it is more an insurance for investors than a distinction for the service provider. If an asset can be put into play, a blockchain indigenous financial institution must excel in strike action. Regardless of the tokens held, it should also excel at lending and trading derivatives. Otherwise, investors’ returns may be less than optimal.