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Digital Asset Investing

Digital Asset Investing

What are the different types of digital assets?

Digital assets, also known as crypto assets or tokens, refer to any asset—digital or physical—that is stored, accessed, and traded via the blockchain. The digital asset ecosystem includes thousands of different tokens that can be categorized into 3 types:

To help further contextualize the digital asset landscape, view our Digital Asset Taxonomy.

What are stablecoins?

Stablecoins are intended to be digital cash equivalents, often pegged to an external reference such as the U.S. Dollar, treasuries, or commercial paper. Stablecoins can be fiat-backed, commodity-backed, algorithmic-based, or cryptocurrency-backed. In volatile markets like crypto, investors look for digital means of “fixed” assets as on-ramps or off-ramps for token positions that allow them to remain in the digital asset ecosystem. For more information, read What Is a Stablecoin?

How can institutional investors use traditional valuation methods to value digital assets?

Methods for analyzing securities and fixed income products in traditional markets, such as Graham and Dodd’s Security Analysis and The Handbook of Fixed Income Securities by Frank Fabozzi, offer useful frameworks for valuing some digital assets. Similar to other asset classes, digital assets vary in function, type, and issuance; therefore, they should be treated separately using a blend of conventional and nuanced guidelines. To learn more about valuation methods, watch Digital Asset Types and Valuations.

How do digital asset investment risks differ from those of traditional asset classes?

The investment risks of digital assets are similar to traditional asset classes with the addition of regulatory uncertainty and security vulnerabilities. For example, without consumer protections in place, lost or forgotten private keys pose custody risks resulting in unrecoverable funds. Separately, smart contracts carry security risks due to data exposure and vulnerabilities to cyber attacks. For more information, read Parsing 3 Types of Risk in Digital Assets and Different Types of Crypto Trading and Investment Risks in 2022.

Governance

What is governance?

Governance encompasses the processes and interactions of administering control of a system. This includes the careful balancing of leadership, diversity, and democratization. The digital asset ecosystem’s primary intention is to provide alternative governance solutions that enable greater autonomy over monetary transactions and decision-making. To learn more, read our white paper, ESG – Why Not GSE?

Why is decentralized governance important?

The Bitcoin blockchain was created as an alternative to centralized authorities within the financial system. Blockchain technology has the potential to challenge corruption, distribution of power, and centuries-old governance methods, enhancing them with transformative and collaborative frameworks. For more information, read DeFi Governance in Action.

DeFi

What is decentralized finance (DeFi)?

Decentralized finance, or DeFi, provides an accessible alternative to the traditional centralized financial system. Developed on a blockchain network, DeFi enables a variety of open-source, decentralized platforms and applications for participants to communicate and execute digital assets transactions. To learn more about DeFi, read “ A Beginner’s Guide to Decentralized Finance (DeFi).”

NFTs

What is an NFT?

Non-fungible tokens, or NFTs, are unique digital assets on the blockchain that enable the creation, monetization, and trading of traditionally illiquid valuables such as artwork, real estate, and music. NFTs can be considered virtual certificates of authenticity. For more information, read What Is a Non-Fungible Token (NFT)?

What are NFTs’ biggest value propositions?

NFTs provide a means of monetizing traditionally illiquid assets across all industries, such as musical albums, paintings, trading cards, and property. Tokenizing these assets helps generate adjacent marketplaces that create or increase liquidity and overall value. NFTs provide decentralized ownership and income opportunities while invigorating a wide variety of businesses. For more information, read Seven Industries Rife With NFT Investing Opportunities.