September 17, 2024

Digital asset staking through the lens of traditional yield-bearing instruments

To better understand digital assets, it can often be valuable to compare and contrast its features to other asset classes.

In this paper we have put together a side-by-side comparison of digital assets and other yield-producing asset classes including fixed income, equities and real estate investment trusts (REITs).

 Key takeaways: 

  • Yield incentives are a component of many major asset classes and a comparison with traditional asset classes provides some high-level takeaways
  • There are similarities and differences across all the major asset classes included that are valuable in understanding digital asset staking and how it can contribute to a total return profile
  • Staking is an active decision, and notable difference between digital assets and other yield bearing assets
  • Digital asset programming differs from protocol to protocol making staking rewards more variable
  • When comparing digital asset staking rewards to equities, the most striking similarity is in how distributions are made to asset holders. Staking rewards appear similar to dividends paid in parent company stock.* Staking rewards are paid in tokens, based on the number of digital assets staked, which is somewhat analogous to a stock dividend where the dividend is awarded as of additional shares, calculated as a percentage of the number of shares held. As is the case with equities, this could have a dilutive effect on token holders, as well as creating longer-term tax liabilities versus those created by an immediate cash distribution.

    * Proof of stake rewards, while usually distributed as tokens of the native blockchain, but can also be programmed to deliver a different token.

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