Ethereum Staking and Investor Adoption
Methodic Capital Management (MCM), an industry innovator in bringing fiduciary responsibility and thoughtful execution to bridge blockchain with broader financial markets, recently announced the launch of the Methodic CoinDesk ETH Staking Fund. CoinDesk Indices, which provides the fund’s benchmark, sat down with Jason Hall, CEO of MCM, to talk about Ethereum staking and investor adoption.
The interview was conducted by CoinDesk Indices and is not associated with CoinDesk editorial.
Why is ETH staking considered to be a more stable digital asset investment?
In the long term, we believe ETH Network usage will be the ultimate determining factor of returns. By nearly any metric, the majority of blockchain activity occurs within Ethereum’s ecosystem, making Ether the most utilized token. We think this positions ETH to be the greatest beneficiary of future blockchain technology adoption. Digital assets can be volatile, however, when volatility coincides with high network activity, Ethereum’s well-established baseline adoption rate promotes asset stability and can exhibit a flight-to-safety quality, especially relative to other crypto assets. There are also mechanical benefits to how the Ethereum blockchain functions. The token supply is adjusted based on network activity which can reduce supply when transaction volume is high. The ETH staking reward rate also increases in periods of high activity, leading to an increased total return, if your ETH is staked. While it’s difficult to net these forces out, together we believe they can amount to increased stability for asset owners.
What will investors miss out on by not having total return on ETH staking rewards in their portfolio?
Staking ETH allows investors to access the power of compounding rewards. Staked ETH rewards are paid in-kind which increases an investor’s ETH position, creating a flywheel effect. People tend to over focus on their long-term price appreciation goals and lose sight of the power of accumulating a larger holding through staking. In sideways markets, staking rewards improve your total return and, in down markets, staking acts almost like a dollar cost averaging strategy. Interestingly, we’ve seen instances where the staking reward rate increases during periods of volatility, further benefiting the asset. So purely from a rate perspective, you have a barbell effect where you can do well in up and down markets, all else equal.
How does MCM help investors gain access to ETH staking rewards?
MCM has expanded the accessibility of staked ETH by enabling investors to gain exposure to the asset through fiat currency, stablecoins, ETH, and other cryptocurrencies. Additionally, the investment itself is a private fund, which means the shares can be held on a traditional balance sheet if the investor isn’t crypto native, or tokenized if they are. Operationally, we focus heavily on mitigating externalities that investors face in crypto such as: regulatory, reputation and operational risks in addition to compliance and balance sheet issues. We also seek to provide accountability through our benchmark, the CoinDesk Ether Total Return Index (ETXTR).
How did MCM come to be an established fund manager in the digital asset space?
At MCM we are dedicated to elevated partnerships and committed to precision and transparency. Our team has worked at the highest levels of the traditional finance industry and understands the requirements of sophisticated investors. Throughout our processes you’ll find multiple levels of redundancy. The nascent nature of the asset class, the steep learning curve, and the hostile regulatory environment make crypto a challenging place for institutional investors, yet interest in the space is growing rapidly. We planted our flag in the digital asset realm by employing exceptional risk management that focuses on the main concerns of investors.
How is MCM navigating the regulatory environment around digital assets?
Our mission is to introduce people to the generational wealth building opportunity that we believe is available through blockchain technology. Clear, thoughtful regulatory frameworks are required to create an enduring partnership with investors. At the moment, crypto/digital assets lack a coherent framework from regulatory bodies. Most of the ambiguity lies in how crypto is classified within securities laws, how the SEC classifies certain service providers, and what regulatory body should govern crypto. We have a strong view on regulation but we don’t assume we’re right, and don’t assume we can predict how regulation will evolve. Rather, we operate within the existing parameters and focus on the risks we can manage. We hope regulations evolve in a way that supports innovation and adoption but our job is to reduce risk, not create it by taking interpretive liberties.
Where would someone go to receive additional information?
Our approach to navigating the intricacies of digital asset investment is multifaceted and tailored to individual investor objectives. Whether aiming for blockchain exposure, expressing a view on crypto, accumulating assets for future on-chain business, or managing treasury reserves, we adopt a consultative strategy. We are happy to connect with those pursuing these objectives, providing tailored guidance and support to achieve their goals. Visit us at methodiccapital.com.
Disclosure:
This content was produced by CoinDesk Indices, Inc. (“CDI”) and not the CoinDesk Editorial team. CDI does not sponsor, endorse, sell, promote or manage any investment offered by any third party that seeks to provide an investment return based on the performance of any index. CoinDesk Indices Disclaimer.