Sygnum Bank’s Head of Blockchain Engineering, Gavin Pacini, shares his views on Ethereum 2.0 and the yield generation 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 and decentralized finance (DeFi).
Ethereum 2.0 – Increasing Scalability and Providing Yield
Ethereum has been very successful, and it currently powers more than 90 percent of DeFi products and services. To support further growth it is currently 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.
The first phase of Ethereum 2.0’s upgrades was rolled out in December 2020, and as part of these changes, Ethereum holders are now able to earn a yield by «staking» their Ethereum to keep the network healthy. This is the process of locking up tokens to participate in the validation of transactions on the blockchain, with a financial «reward» provided in exchange. Ethereum is different but complementary to Bitcoin, and with yields from staking, investors can structure their digital asset portfolios in more creative ways.
Staking Ethereum as a Component of a Well-Diversified Digital Asset Portfolio
Yield generation is an important component of any investment portfolio, and staking is an interesting opportunity to add yield to a digital asset portfolio. It enables investors to generate other forms of return from their cryptocurrency holdings in addition to capital appreciation, and also provides a digital asset alternative in today’s low-interest-rate environment.
Staking of Ethereum should be a core element to any investor building a well-diversified digital asset portfolio. Ethereum 2.0 will take 1 to 2 more years to complete, and while staking at such an early phase could impose certain risks, long-term investors in the Ethereum ecosystem can also benefit from potentially higher yields that come with early participation. Sygnum Bank will soon offer staking services for Ethereum.
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 CHF, USD, EUR and SGD to invest in leading digital assets, including protocol tokens such as Bitcoin and Ethereum, a Digital CHF for instant settlement, and asset tokens. Our clients have peace of mind that these investments are held with bank-grade security, convenience, and trust.
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.