Sygnum Bank: How to Generate Yield From Ethereum 2.0

  • 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.

    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