1000% APY - Fact or Fiction: Applications, Risks, and Rewards in the Digital Assets Space

- Innovative products like yield-bearing stablecoins and perpetual options offer higher yields

- Private banking clients and big institutions in Asia are focused on Bitcoin

- There is no innovation without speculation, says Paradigm’s Anand Gomes

While many entering the crypto space dream of enormous returns, they also need to understand the risks involved – such as smart contract risk, liquidity risk, and counterparty risk – inherent in investing in the emerging asset class.

Panelists said that in general, the higher the reward, the higher the risk. While a 1,000% annual percentage yield (APY) reward is possible, it carries equally high risks because if the underlying asset plummets in value, losses can accelerate as tokens become impossible to sell. Paradigm Co-Founder and CEO Anand Gomes likened such speculation to venture capital investments.

“Usually 98-99% of early-stage investments go to zero because somebody thinks it’s going to be worth more, but there is one that turns out, like a Bitcoin or Ripple,” he said. “Even if one out of 10 works, then that’s enough of a success rate [for VCs],” Gomes said.

While some people may be willing to take massive risks with their capital to try to attain extraordinary returns, most institutional investors prefer lower risks and are happy to sacrifice some returns. Evy Theunis, Head of Digital Assets, DBS Bank’s Institutional Banking Group, said that while a huge return can happen, it is like finding a needle in a haystack.

“Most investors who made their money outside of the digital space are just not going to do that,” she said. “It’s inconvenient, it’s too hard, and instead they will put their money in blue chips or VCs to ensure that they get some return.” She reported that private banking clients and big institutions in Asia are focused on Bitcoin.

Evgeny Gaevoy, Founder and CEO of Wintermute, added that there is a risk for a serious institution to go after such a return, for the institution will suffer reputational damage if it collapses.

When asked about exciting innovations in DeFi in the past year, Javier Rodriguez, Chief Commercial Officer and Head of Asset Management, XBTO, pointed to yield-bearing stablecoins, perpetual options and he highlighted the pace of change. “The faster things change, the more businesses are going to grow, and the more people are going to engage in this space,” he said.

The panel also discussed the potential for decentralized exchanges to offer new investment opportunities and the role of innovation in driving adoption.

As Gomes said: “There is no innovation without speculation.”

The panel was hosted by David Wachsman, Founder and CEO of Wachsman.