Sygnum Bank’s Head of Blockchain Engineering, Gavin Pacini, shares his views on the much-anticipated Ethereum 2.0 and the yield generating opportunities it will bring.
Ethereum 1.0 – The Original Smart Contract Platform
Ethereum is the second-largest protocol by market capitalization, and it is a key player in the blockchain world, having brought about the invention of smart contracts.
Smart contracts automatically execute the terms of a contractual agreement, and as they run on the Ethereum blockchain they are highly available and cannot be tampered with.
A smart contract platform such as Ethereum enables other kinds of blockchain applications such as tokenization – in fact, the market capitalization of all ERC-20 (the Ethereum smart contract token) based tokens has surpassed that of Ethereum itself.
(Gavin Pacini about Ethereum 2.0)
Ethereum 2.0 – Increasing Scalability And Providing Yield
Ethereum has been very successful, and to support further growth it is upgrading to Ethereum 2.0. The team is making fundamental changes to the underlying technology, which will increase throughput and reduce the costs of transactions, allowing greater transaction flow in the future.
As part of these changes, Ethereum holders will be able to earn a yield by «staking» (locking) their Ethereum to keep the network healthy. Ethereum is different but complementary to Bitcoin, and with yields from staking investors can structure their digital asset portfolios in more creative ways.
Accelerating Adoption of Digital Assets
Record amounts of fiscal stimulus being injected into economies globally have created challenges for traditional asset classes. The amount of value that can be generated from traditional investments has been reduced and there is a risk of inflationary pressure leading to the loss of a portfolio’s purchasing power.
This is accelerating the adoption of digital assets such as cryptocurrencies, which are emerging as an alternative asset class independent of the traditional economy. Adding cryptocurrencies to a portfolio could boost returns while increasing diversification.
Get Started in Digital Assets by Investing in Ethereum
Looking at real historical data, a 5 percent allocation of Ethereum to a traditional portfolio originally comprising 75 percent equities and 25 percent fixed income would have increased investment returns by 10 percent from the start of 2019 (see performance of portfolio 1 without Ethereum versus Portfolio 2 with Ethereum in figure 1 (see below).
While volatility would have also increased, the outperformance after adjusting for the increased risk is still positive, with a Sharpe ratio of 0.87 compared to 0.67. The winning factor is that cryptocurrencies have historically demonstrated a low correlation to traditional assets.
For example, Bitcoin’s correlation to equities and fixed income has for the most part fluctuated between -10 and +10 percent. This means that in the long-term cryptocurrencies are a good diversifier and can increase the resilience of a portfolio.
Invest in the Digital Asset Economy With Complete Trust
Sygnum Bank is a regulated Swiss bank that specializes in digital assets. With a fiat-digital asset gateway, our private clients can use their deposited Franc, Dollar, Euro and Singapore Dollar to invest in leading digital assets, including Bitcoin, Ethereum, XRP and Bitcoin Cash, a Digital Swiss Franc for instant settlement, and asset tokens.
Our clients have peace of mind that these investments are held with bank-grade security, convenience, and trust.
For more information, please visit us at www.sygnum.com or contact our team at This email address is being protected from spambots. You need JavaScript enabled to view it..
PLEASE READ-IMPORTANT INFORMATION: 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 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.
