- Andrew Kiguel spent several years building out Hut 8 Mining, one of the largest crypto miners.
- He sees a shift towards crypto staking, rather than mining, and has launched Tokens.com to capture that trend.
- He explains the firm’s staking strategy and shares what tokens are on his radar.
Andrew Kiguel sat in a privileged position within the crypto industry as the co-founder and CEO of Hut 8 Mining – one the largest crypto mining firms. But when he detected a shift taking place in the market, he decided to make a change.
“I can’t think of anybody in the last year, year and a half, to build anything on proof-of-work,” Kiguel said in a recent interview with Insider. “Everything from solana, to polkadot, to shiba inu is being built on staking … over 50% of the crypto market capitalization is being dominated by staking tokens.”
Bitcoin mining uses a proof-of-work consensus mechanism. This a process uses high-powered computers to keep a cryptocurrency network secure and up to date, rather than relying on a third party to do so. In reward for doing this, miners get paid in bitcoin. The system is peer-to-peer, which means the currency is fully decentralized. But the process can be slow and uses a huge amount of power.
Other blockchains such as ethereum enter a record of every transaction on their ledgers – known as validation – using a proof-of-stake system. People loan, or stake, their cryptocurrency to validate transactions and in turn earn rewards, or yield, on their coins. This process is faster and less energy intensive.
Kiguel started Hut 8 Mining in 2017 to give public market investors exposure to bitcoin. He’s now seeing the same opportunity with staking.
“There’s no such thing as a green bitcoin,” Kiguel said. “I love bitcoin and I believe it’s going to evolve and become more efficient. But the mining and processing of blocks in the bitcoin network requires the use of electricity, by virtue, whether it’s coming from renewable sources or not, it still needs a tremendous amount of energy to process it.”
Tokens.com
The challenges with proof-of-work validation is why Kiguel is betting on staking. He sees an opportunity to reduce crypto’s carbon footprint and improve transaction speeds with proof-of-stake.
So in 2020, he co-founded and became CEO of Tokens.com, a company that holds an inventory of crypto tokens that can be staked and generate income. The rewards, which are often in the form of more tokens, can then be restaked, compounding returns for the company.
Investors can gain exposure to this inventory by investing in Tokens.com, which is listed on several exchanges. They will benefit from staking revenue and a potential appreciation of this inventory of assets.
Staking strategy
Currently the portfolio consists of 5 tokens. Kiguel said the criteria for owning them is based on a macro view, with a focus on tokens that are infrastructure-based, rather than application-based.
“I’m betting on a macro level that people will continue to build on the layer one operating systems,” he said.
Instead of buying a token associated with a decentralized exchange (DEX), such as uniswap, Kiguel sees more benefit in investing in the layer one that uniswap runs on, which then benefits from uniswap’s transactions, as well as transactions from other ethereum-based DEXs.
The strategy is buy-and-hold, with a quarterly rebalance to avoid one asset carrying too large a weight in the portfolio relative to the others.
“We look for the tokens that have generally very large market caps, such as solana and polkadot,” Kiguel said. “We look to see the volume [and]
liquidity
, we look to see who else is backing it [and] we look to see what’s been built on it … we look for market signals and we’re not looking to hold a lot.”
Kiguel expects to hold no more than six different tokens. Most will be core assets and layer ones, such as ethereum (ETH), polkadot (DOT) and binance smart chain (BNB). There will also be one or two tokens that are off-strategy that offer interesting exposure, Kiguel said.
Shiba Inu
One of those off-strategy tokens is dogecoin spin-off shiba inu. Kiguel recently purchased 833 million shiba inu tokens in November.
Kiguel took a bet on the meme cryptocurrency for several reasons:
1) It can be staked.
2) It’s a large token that places it within the top 15 cryptos by market capitalization.
3) It has a huge following.
4) People want exposure to it.
“When it comes to tokens.com [people are] not looking to get exposure to bitcoin,” Kiguel said. ” There’s lots of ways to do that … nobody else in the world, that I’m aware of as a public company, owns things like shiba inu or things like Axie Infinity and is providing exposure to those to its shareholders.”
So does this mean dogecoin could be next?
“Everything’s on the table … we try not to own a ton of different [tokens], we’re not a fund, we look to see where the staking rewards are,” Kiguel said.
The next purchase will more likely be another layer one than a token like dogecoin. Kiguel is currently looking closely at solana (SOL) and terra (LUNA) as a potential next purchase.
Oasis
Another off-strategy token they own is oasis network (ROSE), a settlement token for a layer one known as the oasis network.
This is the first token the firm ever staked at a time when they had limited capital. The venture capital team Polychain offered to cut back their allocation and provide some to Kiguel and his team for $0.03 a token because of its strong staking payouts.
Kiguel and his colleagues decided to take them up on the offer, as the token would provide staking returns of around 18%. It paid off, as the coin also surged around 600% in price. It’s currently trading at around $0.24.
“If we see something that looks interesting that’s backed by the right people, that’s going to start trading, we would certainly look to potentially pick up small pieces of that for our investors,” Kiguel said.