The Hidden Source of Yield Wall Street Doesn’t Understand (Yet)

traditional investors love yield, as you and I both know, and you've got this classic 60/40 portfolio. It's built around yield, 40% bonds. You've got the dividend income within the equity portion. But I think a, a lot of new investors, and we've been talking about this, they come to crypto and they don't actually realize that there's yield over here as well. And I think when they do discover it, the challenge is just understanding how it actually works because it can be very different to traditional markets. So I thought maybe in today's conversation, you're fast becoming my go-to guy for staking. So I thought maybe we could unpack what staking is because it's sort of this, the crypto world's equivalent of fixed income, I suppose, in many ways, what it is, how it generates yield and the risks that investors should be aware of across the digital yield curve and maybe some practical steps for somebody who wants to start exploring this within the crypto sphere.

Yeah.

Yeah. So maybe why don't we just kick off with some quick intros? Great.

Do you want me to go first then? So good to see you again, Nick, and thanks for inviting me on. So I've been in capital markets and working in the City of London for the last 25 years or so across a range of investment banking, investment management, and I've had my own consulting business for a reasonable period of that as well. So I've had like a really good exposure to tradfi, worked across a whole range of different financial sectors, but also concurrent with that over the last 8 years, I have been deep down the rabbit hole with crypto and digital assets. And so that's been a journey of passion, intrigue, volatility, excitement, despair, and all the usual things that you can imagine. So hopefully I'd be able to bring a good understanding and balance at this juxtaposition between Web3, as we call it now, and trad fi.

Yeah. And you've got a book as well, haven't you? You've written a book on this space.

Yeah. So I guess part of that has been, I started as a curious investor and really wanted to start getting exposure to the asset class. And then I also have spent some time really trying to not only learn from my own perspective, but pass that learning on to others. So I guess part of my profile is as an educator. I published my first book on crypto, which was really a summary of my 8 years of learning into a, I guess, a one-stop shop for people to benefit from my learning. And what I've tried to do there is package something that can take you from zero to hero. But it's not an idiot's guide. It's not a really basic book. I think it was described by some of my sort of test readers at the beginning as more of a book for financial professionals and serious people, investors who may either want to invest in the sector or work in the sector. And so I've tried to pitch it at that level, really digital assets for financial professionals rather than a pure retail idiot's guide to that. Published a second edition and update literally last month. So that's there. And I've also had quite a lot of exposure on the professional side as well to crypto trading and certainly on the regulatory side, that's been one thing. And maybe I should add to the context of this conversation that, as you well know from anyone who works in the financial sector, you can't be an expert in absolutely everything. So I made a decision early on that I was going to focus on yield. You know, some people were deeply into NFTs or might have been just pure Bitcoin maxis. I decided that I was going to specialize in yield, and by doing so, I focused on proof of stake as maybe my specialist topic. So probably that sets us up for today's conversation.

Yeah, we'll come on to the maxi point. I've got a few things to say about that in a second. But yeah, so I'm Nick, 17 years in financial markets, that world, was a stockbroker at a global investment bank, left that world late 2024, decided to set up my own business. I first invested in Bitcoin 2015, and it was this kind of crazy tech-driven, very volatile, weird thing. And the big idea for the business that I've since set up is, hey, we've got this traditional world over here, risk managed, sensible outlook, long-term approach. Why don't we try and put that over a Bitcoin and crypto overlay and just try and bridge the two and, and have people, rather than see Bitcoin and crypto as this weird casino, you can actually take traditional investing approaches, put it on and use it for your long-term wealth plan. And so I, I now educate people, whether it's through an Everyday Investor community and online course, or I work one-on-one with high net worths and corporates to really hold their hand and walk through this often alien space and just to make it really simple and easy for them because it can be quite confusing. So I thought maybe we could kick off the call by just talking about the traditional toolkit for yield, because I think if you look at, let's say, treasuries, gilts, you know, essentially the government taxes the populace. They borrow the money, they pay the interest with the tax that they took from the people in the first place. Corporate bonds pay interest from the revenue, and if they don't, the bondholder has a claim on the assets. Dividends are paid if the company actually generates a profit. Property earns rent from tenants. Then you've got cash in the bank paying interest from the loans made by the bank. And then maybe structured products. A bit separate, more advanced. But I think all of that makes really intuitive sense for investors and it feels real because they can track back where the cash flow comes from and it's seen in their everyday lives. Where I think in crypto, the yield comes from a different place. Do you think it's even possible to have that understanding in a relatively easy format or get up to speed relatively quickly? Because for me personally, it did take me a while to actually understand the mechanics underneath. Yeah.

And I think, I think a lot of, a lot of the traditional yield-bearing methods that you've mentioned also exist in the Web3 space. But the one that, that is definitely different and unique to digital assets is this concept of what we call staking. So we can obviously discuss that in more detail, but it is a way of generating organic yield on your holdings, for those anyway that operate a proof of stake approach, then that's something that's unique to this asset class. Yeah, perhaps I should come back and help explain what we mean by staking and how the yield is generated. Yeah. And then we can come back to the point about the risks. So, Staking effectively generates rewards because holders of the token who choose to stake are delegating their tokens into a pool, which helps to secure the network. So the idea behind any, any, uh, blockchain or decentralized network is that it needs to have blocks and each block needs to be validated. So in Bitcoin, we're all familiar with this idea that it's, um, consuming energy because it has something called a proof-of-work consensus algorithm. And miners or validator nodes use compute to solve complex mathematical problems. And then a miner will succeed in validating the block and receive the rewards. And that is the concept of Bitcoin mining. In the sense of proof-of-stake, it's it's, it's very different. So what happens is, in order to protect and secure the network, investors with the token will essentially delegate to a pool. But in some cases, and in most cases, the tokens never leave your own wallet. So you could still retain the tokens within your cold storage. It never actually leaves your own wallet. It's a delegation. It's, it's much more like depositing into a, into your own bank account and receiving interest than it is like receiving dividends. And essentially, there are risks, obviously, which I'll explain, but essentially you receive rewards because you are committing your tokens to the protocol for security and they're encouraging good behaviour and they're encouraging commitment. Now with that, you will often gain a voting right, a bit like a shareholder. You will have some say in governance often, and most of these protocols are decentralised. So you become part of the governance of the network. The reason that they're able to provide that security is that there is usually in these protocols, something called, um, slashing risk. And so that's one of the risks for investors in staking to understand. And what slashing means is that a bad actor who may be acting against the security of the network can have either some or all of their delegated tokens confiscated effectively. So, um, this could be, um, this could be generally, um, in a sense of a bad actor might mean a validator node that's not got good uptime and is not performing to help the network and keep it secure. So, so, so that's normally one of the elements and it, and it is something important to understand. But, um, what I can say is that, you know, in more than 5 years of staking across over 50 protocols, it's not something that has really worried me, and it's certainly not something I've ever experienced. So I think generally that's a relatively low risk if you're staking professionally and/or using reputable validators. And often you can put a layer of mitigation between you and that risk by being a delegator rather than a a firsthand validator, and often the validators themselves are larger, more professional companies simply because of the capital required to fulfill that. So slashing risk is there, but what happens when you delegate to a stake pool is that you are rewarded with tokens for your role in playing that role of security. So, so as a result, you will receive tokens as your staking rewards. Sometimes they're daily, sometimes they come after a number of blocks or after certain periods of time, but on the whole, it is a consistent stream of rewards in the same way as earning interest or receiving dividends. So that's where the yield comes from.

Have you focused on proof of stake just because it's largely protocol-level staking and you're less exposed to smart contracts? Or was it just what kind of drew you to that in the first instance?

Yeah, maybe to give you and those listening a bit of sort of learning from experience. I think I started really in around 2017, but by about 2020, there were a lot of different innovations coming through the digital asset space. And obviously you saw the rise of decentralized finance or DeFi as we call it. And so I think myself, like a lot of other people, probably got into this whole excitement and environment where, as we used to say, you were experimenting with real money in real time. And a lot of these projects and protocols were really pushing the boundaries of innovation, both technologically and from a financial engineering perspective. And, you know, they really were in many cases just science experiments, but obviously there was a lot of money sloshing around. And so you saw the rise of DeFi and all sorts of other aspects around it. And of course, we will all remember the rise of lending. And so I have experience having been involved with DeFi, with lending, with staking, and And so probably those are the primary ways in which I was seeking yield. I think the lending market really collapsed in late 2021, early '22 with the ultimately when you saw the FTX collapse, you had this interconnected web of companies rehypothecating and really doing what the banks do to our cash, but they were lending out people's crypto When you add in a small proportion of fraud and malfeasance into the mix, it was pretty toxic. I, you know, on the one hand, I was able to foresee a lot of that happening and get out, but at the same time, myself, like a lot of other people, got caught up in the mix with the Celsius bankruptcy. So, you know, that's where you suddenly get a real taste of what it means to have counterparty risk and some of the legal risk. And maybe we can come back to that later because that's an element that is actually not present in staking. There are other risks to consider, but so the lending piece really has collapsed and, you know, that I'm sure we'll see it come back as the market matures. But a lot of those companies went to the wall and DeFi continues to grow and expand, but it is, It is certainly not for the faint-hearted. It's very complex. And it really does range from quite sort of stable institutional-level practices on the one side to, you know, what we describe as degen practices on the other end. And some of the methods and capabilities now within DeFi are operating at such high speed because of the technology and the capability of the smart contracts to operate that. It's really quite extraordinary what can be done. I think my experience brings me back to really a flight to quality and a flight to safety. And that's why over that journey, my feeling now is digital assets do remain still quite user unfriendly at times, and they certainly remain complex to even quite sophisticated investors in terms of their knowledge. Because it's an entirely new asset class to learn. So I think what I've felt now is stick to something that is simple, lower risk, but at the same time, you know, take advantage of those organic opportunities that exist within the asset class as a result of the technological innovation that's been achieved.

Yeah. Fascinating points. So people that I talk to sometimes will sort of say, you know, if they're porting across to crypto, they'll say, well, okay, let's say Solana staking. I think, where's it hovering at the minute? 5, 6%, something like that.

6, 7. Yeah.

Yeah. Right. So, so they, they kind of say, okay, that's interesting. One, I didn't know it existed, so let's explore. But two, if they can go and maybe get, I don't know, 4% in something much less risky in traditional finance. And as you said, there's this underlying complexity, A, in terms of how staking works, B, it's in this whole new crypto market. They sort of say, should I even bother? And of course, obviously they're exposing themselves to the underlying volatility of the project, which on the one hand, obviously it's a good thing in rising markets because you're getting this huge capital appreciation and yield. But I think when markets are frothy or moving sideways, or if we move into a bear market next year, people are sort of questioning what the point of it is. So how do you think about that? What kind of attracted you to yield in the first place?

I guess I came into this shaped by an experience I had in the dot-com boom and I saw opportunities come and go. Some I captured, some I didn't. So I guess I felt that here was an opportunity to get into an asset class early and achieve asymmetric returns. But in order to do that, I always felt that you probably had to just almost play the Warren Buffett card. You had to get in, you had to take some positions and stay for the long term. And if you look at the most successful people who've invested in the early internet stocks, it's the ones who look back and say, you know, they got in and they stayed with it, and then they see the the phenomenal gains that have come from the winners. You will have winners, you will have losers. So of course you have to have diversification and sometimes you'll get lucky, sometimes you won't. But I felt that the best way to do it was to try to have a sensible and diversified portfolio and capture the yield and then compound it over time. And it's not the rocket ship strategy necessarily. It's not going to buy you a Lamborghini necessarily. But that wasn't what I was in this for. And ultimately, if you can build value over time and have a portfolio that returns significantly higher than a traditional portfolio, then you can't ask for more.

But I mean, you say it's not the rocket ship, but actually you've still got that exposure to the underlying capital appreciation, haven't you? In this quickly growing market, you have.

So let's take a step back on a couple of things. So I think, You know, one of the things that people are talking about a lot, and, and obviously, you know well, Nick, is the idea that if you have a small allocation to the asset class in a traditional portfolio now, and we're seeing this, you know, promoted by the likes of Morgan Stanley, BlackRock, and JP Morgan, they're all coming out and suggesting portfolio allocations to the asset class, 2, 3, 4, 5+%. And the idea behind that is that you can get asymmetric returns on smaller allocations And they deliver you significantly higher performance. And many people who've been fortunate enough to get in and invest in some of these, even equities like MicroStrategy, for example, is absolutely rocket-fueled returns for people over the last few years because these assets just perform to a different metric to a lot of traditional investments. So without question, you have that. At the same time, the risk premium brings with it volatility. So if you bring it back to the idea around staking, yes, you can gain the yield, but you also have to understand that there is volatility. So one of the things maybe we can cover is the tax implications of having these and how you balance your tax liabilities with the volatility of the off tokens because price versus tax liability is one of the factors people should consider.

Yeah. Yeah. I mean, you suggested a chap to me recently, didn't you? But I think there are increasing numbers of specialists that operate in this space now that understand that, aren't there?

Even in the UK. My wife, for example, is like, so you are saying that we are paying income tax on staking rewards at one price and then the next year the price goes down but we've paid the tax at the higher price. Yes. But then at other times you'll be paying the tax on a lower price and then the price goes up. So risk and reward and volatility comes with it. But that is the challenge that you, if you are receiving a reward on staking and you will consistently receive your rewards, you know, daily, weekly, monthly, however the protocol plays it out. Then if you're capturing the values, and I use a tax software which makes life much easier, but you're essentially realizing an income tax liability at the point of receipt. So whatever the price is on that day, that's going to define your tax obligation on that particular reward. So sometimes you'll be incurring a higher tax and sometimes a lower tax, and it will spread out over time in the same way that dollar cost averaging plays out. I guess, you know, with that price risk or price volatility, you also have the upside if you are holding for the longer term and you've been, you've just been compounding and building up, then of course, as long as you're not selling with a currency like this, with a currency exchange rate versus fiat, if the token rockets at any point in time, then everything you've ever earned rockets to the same price. So, it can be good. It can be quite harrowing at times when you have a big dip in price, but that's the nature of the asset class and it's not for the faint-hearted maybe, but it's getting much better.

Yeah. I mean, you can see why people new to this sector are quickly put off. Do you think the tax— we won't dwell on this because it feels like a long way away, but do you think that tax environment might change to simplify this kind of stuff in future?

I don't know, but I think paying income tax on income is fair. So I don't think the tax on staking is necessarily a challenge. Of course, the challenge is you pay the income tax when you receive it, you then pay capital gains if you trade it or sell it. So you actually get, you know, and that's maybe the same with other assets, but But that's just something to bear in mind that, you know, ultimately, yeah, our tax system is very complex.

Yeah. Yeah. And then just going back to the counterparty risk, how do you think somebody new to this space should think about that? Because again, going back to somebody intuitively knowing how the yield is generated from traditional finance, they, I think, also have an intuitive understanding of the counterparty risk. So, Obviously, gilts, treasuries, the government's on the other side. Companies, whichever sector they're in, are going to be exposed to various threats. The banks can obviously lend money without the depositor knowing exactly what they're doing. Tenants might not pay. On the one hand, there's an intuitive understanding of how that works. On the other hand, your knowledge in traditional finance of the counterparty risk is actually quite opaque. And I wonder if despite the complexity of crypto and staking, is the counterparty risk actually more transparent because you can actually go in and understand the underlying collateral on some of these platforms, or maybe find out if these, if some of the smart contracts have been audited or just find out exactly from a white paper how this staking process works?

I would describe it as really you're taking protocol risk or smart contract risk. So most of these being decentralized protocols, they are essentially established and financially secure, and they're not necessarily running a P&L in the same way that companies are. So on the whole, they are relatively stable and generally pretty reliable. That said, there is always a certain amount of risk. And in fact, only this week I saw that one of the layer 1s, Kadena, which has been around for a while, has actually decided to shut up shop. But I'm sure anybody, if I don't even know if that even was a proof of stake network, I'm not sure., but people would have the ability to withdraw anyway. So you're taking price risk, you're taking protocol risk slash, or I shouldn't say slashing, protocol or smart contract risk. And the other thing I think is worth noting is that you are locking up your tokens. So you take a limitation on liquidity. Now, when you delegate, normally there's a period of time, um, for your tokens to settle into the stake pool. And normally there is a period of time that you are required to wait to withdraw them. Now, some of them can be 24 hours, some of them can be up to a month. And so, um, in a, in a volatile, um, asset class, it is worth understanding that you might not have immediate liquidity if you are staking. And that can have an impact if you have big price movements, which is why I think ultimately, um, the, the hare versus the hound approach of investing for the long term is the one to go here with just steady compounding of rewards over time. But it is worth understanding that liquidity point because if you take something like Polkadot, a very established proof of stake protocol, but that can take up to 28 days to get your tokens back out of the stake pool if you want to then withdraw them and use them. So that's worth understanding.

And I mean, I think one issue that new people have is that they don't understand where, again, where the kind of the cash is flowing, where the fees are being generated, because I think they need to understand the whole DeFi ecosystem to realize that these cryptocurrencies they're just fuel for a system. And there is, you know, there's the on-ramp of fiat coming into this system and then being converted into rewards, tokens, and things that are used within this system, isn't there?

Yeah. And so I think, you know, there are some of the institutional investors in the space look very specific at the cash flows to the protocols. And some of these, I look at them as, I don't look at them as currencies, I look at them in the main as tech stocks, really. These are the vast majority of these cryptocurrencies, as we call it, are essentially utility tokens within a technology platform or a network. And so often they, the good ones have genuine utility and they will be generating fees. So a number of of these well-known protocols are generating significant fees and revenues. And so they are very financially successful. It's phenomenal. In fact, I was only this week, I was at a conference in London and somebody was making a presentation about the fact that Ethereum is the fastest growing technology company ever, faster than Apple, Nvidia, and all these other well-known Microsoft. And it's got to that point quicker than any other of the major technology companies. So, you know, these, if you look at them in terms of being essentially decentralized technology stocks, they are really interesting. And that's, I think, is part of the investment thesis for in going into these tokens in the first place.

Yeah, I mean, that's incredible, isn't it? Those numbers. You touched on staking versus lending. I sometimes worry about the whole, you said lending was gonna come back. How do you think about the sort of sustainability of staking versus lending? Because when I look at staking, I see it as driven by utility. As we said, fees are being generated, the network's being secured. Whereas if I look at the problems that we have today in traditional finance, yield is often de facto a function of debt. You know that companies are, and governments are borrowing to keep going. And that, so therefore I worry that if we go back into that almost like a fractional reserves type system in crypto, it then kind of exacerbates the problem that we're trying to escape from.

Yeah, I think the sort of shambles that we had collapsing in late '21 really came from a very small and interconnected marketplace where essentially everyone was lending to everyone else. And it was almost, it was a stool with one or two legs and it was not surprising, but that, you know, it's probably the nature of an immature market that's moving rapidly. And so it was probably inevitable that we were going to see that. I think, I mean, it's interesting and there's some debate at the moment. You can go on Coinbase now and you can deposit cash and hold USDC stablecoins and you can get a yield, but that yield is not coming from staking, it's coming from ultimately, um, you're essentially providing liquidity to Coinbase and they must be lending out and, and being able to give you that yield. So, um, so those, that, that's a question that obviously is, is, is quite a hot topic at the moment. Will stablecoins, for example, which are the, um, maybe the killer app in crypto, but, um, will they be allowed from a regulatory perspective to to be yield generating. And that's a question that has not yet been answered at the regulatory level. Eventually over time, I'm sure that something will, you know, will play out there. But at the moment, if you are looking at earning a yield on a stablecoin, you are looking at going into DeFi and essentially you're either using liquidity provisions or, or your lending. So, so, um, that's, that's one aspect of it. Um, and then in terms of the actual crypto tokens themselves, again, you can, you can also generate yield in, in DeFi by, by providing liquidity into exchanges. But I think that comes with additional risks. Um, And that's probably not a topic for today, but I personally, I'm much more comfortable with staking than lending. But at the same time, I think you and I have discussed when you have something like Bitcoin, probably a slightly different conversation, absolutely pristine and scarce collateral, then no doubt we're all hoping that at some point there will be a way in which we can essentially lend securely to a highly safe and credible counterparty such as a global tier 1 bank and be able to start generating a yield on Bitcoin as collateral. I'm sure that will come. It's already coming.

Yeah. And I mean, I can't imagine some, somebody like Zappo Bank, they've been around since day one. Surely that's going to be on their agenda at some point.

Everyone wants their hands on the Bitcoin. There's not much of it.

Well, exactly, exactly. On the stables, it's a really interesting point. I mean, isn't there an argument to say that if you are in a stable that's essentially backed by US Treasuries, if there's a yield coming from those US Treasuries, shouldn't it just be passed through to the stable holder? Because it's just, because otherwise a regulation, a regulation that stops that from happening is essentially just saying, well, the, um, return is being locked by the provider of the stablecoin and that doesn't seem, uh, fair really.

I guess the yield is going to the stablecoin issuer in order to, um, provide a, a rising collateral base to issue more stablecoins because there's a demand for it. But, um, yeah, it's interesting. The other thing, of course, um, we haven't touched on, but obviously has been a topic around staking is that as ETFs come to market, whether proof of stake tokens going into ETFs will be allowed to actually also capture the yield from staking. So when the ETH ETFs were first approved, it was not allowed to incorporate staking yield in the product. I believe there is movement on that now, and we're likely to see a more holistic ETH ETF come out, which will also incorporate staking yield, and that will make it much more accessible to the average investor because the whole product and all the complexity of doing it is wrapped into a market-ready product. And hopefully we will see additional ETFs coming for some of the major proof-of-stake tokens, Solana being a very good example. And if that comes and if you can buy an ETF giving you exposure to Solana and capturing the yield, happy days.

Yeah, I think, I think that's potentially where the opportunity is because I think a lot of people that start to really understand Bitcoin, they, a lot of them obviously want to go down the self-custody and multisig security routes. And this kind of maxi argument that there is only one and Bitcoin's the only thing you should look at, I think gets caught up in the fact that Bitcoin's a monetary asset and sort of fixes the money, whereas all this other stuff does very different things. So I think that maybe there's an opportunity for, maybe not maxis, because I don't think they'll change, but people like myself, class myself as a Bitcoiner, huge supporter of Bitcoin, but willing to look at other stuff. So maybe you have the foundational holding of Bitcoin, you do the whole self-custody multisig approach, and then you go into TradFi. And have these ETF holdings of these other staking protocols and pick up a bit of yield as well. So I think maybe that's an opportunity. But again, I worry that the UK, we seem quite behind the curve and all this is, you know, all this is being talked about now. So I worry that the FCA is going to be talking about it in 5 years' time.

Yeah, it's interesting, isn't it? The contrast. So this week, remarkably, we had one of the governors of the Federal Reserve in a public press conference talking about how crypto rails are now integral to the global financial system and that we have to integrate crypto assets into our financial infrastructure. And yet we have over here, the UK making it so difficult and just trying to stop people. They've already, as you and I have said, they've already protected UK retail investors from one of the greatest performing assets of all time. And, and even for somebody like myself with all of the confidence and knowledge I have in the asset class, I am still struggling to understand how I can invest within a tax wrapper in the newly approved Bitcoin ETPs because they've made it so complicated. And then just as I was getting ready to, um, to make a move. I then hear that, um, they've actually now said that you can only hold it in an ISA until April next year, and then it will have to be removed from a standard stocks and shares ISA. And I think they've come up with another complex ISA which nobody uses called an advanced technology ISA, and that's the only place where these are going to be held. I mean, it just beggars belief how complicated and overregulated we are. And yet you can go to Vegas and bet your house. Mm-hmm. Yeah, it's bonkers.

It's absolutely bonkers. And somebody in my community the other day, he said all the banks on the high street are closing down and a typical high street is full of betting shops and you can go in there, take a few thousand pounds, put it down, no questions asked. And it's just a really, really sad state of affairs because, you know, maybe a completely separate conversation. The, um, the, the whole pensions crisis and this ticking time bomb that everybody knows is there. Politicians just kick the can down the road because it's not their problem. It's only their problem if they come into power when this thing actually rolls over. So it's really sad to see. And, um, I can't remember who, who said it, but they were talking about how, um, I think it might be being the guys at BeHodl, the, the, the, um, Treasury that's just listed on Equus. Yeah. And they were saying, you know, we've got Britain have come from this really distinguished past really in terms of how our financial services sector has burgeoned and grown over the years and the decades. Same with a lot of tech, you know, some fantastic companies founded here, fantastic entrepreneurs. And you've got this perfect asset in Bitcoin, maybe some crypto where you've got this overlap of technology and finance. And yet we're just, ignoring it or stopping people from benefiting from it. And I understand that one would hope the regulator does at its core have a genuine desire to protect consumers and investors, but they're doing it in a way that is actually harming consumers and investors.

Yeah. And it's such an unsophisticated approach. I mean, coming back to what we were saying, I think I think if you look at the digital asset space right now, you've got 4 distinct segments of the market. So Bitcoin sits on the throne. It's the granddaddy. It is the store of value, this concept of digital gold, and it's this scarce and inflation-resistant asset, you know, enough said. So then you have stablecoins, probably the killer app, and obviously that is simply tokenizing dollars, pounds, euros. So essentially no price risk and it's just digital, digital currency. Then there is, I'm going to jump to the end. There is the, that whole, like, how do you describe it? The whole cesspool of like meme coins and gambling stuff. And the trouble is that the regulator doesn't differentiate between the purity of something like Bitcoin, which is an institutional-grade asset being talked about by the Federal Reserve, being allocated as a strategic asset by the US government, and now being institutionalized by all the leading financial companies and banks in the world. And yet the FCA treats it with the same classification and risk profile as Church of the Smoking Chicken Fish or Fart Coin. And this is where, you know, it's just so unsophisticated to do that. So you have all these meme coins, but really all they are is They're just lottery tickets. They're just scratch cards, right? They're no different to the scratch card you buy in the newsagent. You might win, you might not, you probably won't, and you'll probably lose all your money. So that's that. And then the reason why I sort of jump to the end and back again is because then there's all the other cryptocurrencies, which are not currencies. They are in many cases extraordinarily innovative technology companies that have tokens rather than shares. And so, The good ones have genuine utility. There is a whole range of segments within the asset class, whether it's NFTs or whether it's decentralized physical infrastructure or oracles. They achieve incredible things with their technology and they often are fueled by excellent revenues and they're they're just good, almost like good, good early stage tech stocks, which have been democratized to the likes of you and I who can buy them pre-IPO. And in many ways they've been able to be bought by retail before institutional. And that's been great. So you've got these four elements, but unfortunately the regulator in the UK treats them all the same, same risk, same outcome. And it's very frustrating because actually a little bit more sophistication would would help not only for investors to stop the confusion, but it would actually give people exposure to genuinely valuable investing opportunities at a time when they really need that. Like people have to earn 10% to stand still and not be whittled away by inflation and currency debasement right now. And making it so difficult and And really sort of demeaning an investor's intelligence and flexibility to invest in assets of their choice is not exactly democratic.

I mean, that's a big word to end on, on that particular point because I think it is, we are getting to a point where there's lots of undemocratic things happening in politics and finance. I suppose it sort of Coming to an end a little bit, or sort of getting towards the last bit of this discussion, just in terms of somebody who's looking at this space, what do you say to, I mean, you mentioned Solana a second ago, 6, 7%, right in the door. And if you are diversifying risk against some other protocols that might get your yield even higher, you know, well into the double digits, what do you say to somebody who's new to this space and they go, Well, that's just too good to be true. I don't understand how that can even happen.

I'd be very careful looking at the yield. My view is that if a yield is higher, there's a reason. It's because it's higher risk and it's probably a lower quality protocol. So Ethereum typically, depending on how you, how you capture the yield. There are different ways of doing it, but it's broadly speaking around about 3%. So somewhere between 2.5% and 3.5%. Solana is more generous and a lot of the really high quality protocols, to be honest, they're not paying more right now than a money market fund. So your point earlier about risk and complexity is really valuable. And there are obviously other aspects like, you know, there are different ways of adding smart contract complexity to try and squeeze out a bit more yield. I personally just don't think that's wise. I mean, restaking is an example, which where you sort of add on another layer of technology to try and squeeze out maybe another 30 or 50 bps and it's just, In my view, it's just not worth it. I would always be cautious and everyone should obviously do their own research. But from my perspective, we'd be looking at the quality of the, of the project or the protocol. If it's one of the top listed in, in CoinMarketCap and you're looking at a sort of top 50, maximum top 100, and then look at its genuine use case. Is it generating fees? Is it generating revenues? Is it providing a real service to real customers? And is it adding value as a technology? Then you can, you can take a sensible investing decision. You know, look at the quality of the team, look at how long it's been around, and also look at price history as well. You know, there are a lot of pretty good technological protocols out there, but they just haven't captured the imagination and the token's trending to zero. So I think it's really important now. Particularly at this point in time to see a flight to quality. And I think it's always a balance, isn't it? Everybody wants to have that sort of punt and get that absolute winner. But then on the flip side, some say that diversification is selling the winners to buy the losers. So maybe a philosophical question to end on.

How would you recommend, because if I speak to a high net worth investor and they are starting from minimal knowledge, it's always, you know, as you said, start with the daddy, start with Bitcoin, really understand it. Then maybe you start to allocate a small percent of your crypto exposure into alts. In terms of the exposure within the alt allocation to the staking stuff, would you recommend that again, they're walking up the curve, would you recommend they even start with the super easy staking options with the exchanges? Or would you say kind of get into the self-custody type options and staking from cold storage as quickly as you can?

I personally, and have definitely learned this from experience. I favor the old saying, not your keys, not your crypto. I would not hold any significant value on a centralized exchange because you are taking counterparty risk and it's all fine until it isn't. So bank yourself. It is not that difficult. To hold assets securely with the right advice and the right education. And then actually staking is relatively easy to do, but it does take time. And so it's something you have to learn about and educate yourself in. And obviously with all of these things, security is really important. To take seriously because of the nature of anything that's online. So I'm not a huge fan. And the other thing of course is that if you are using a centralized exchange or any sort of middle agent in the financial sector, you're always giving up spread as well. So I tend to now look for the optimum way to balance yield and security. If I'm staking a protocol, I don't really want to be paying too much out to certain providers to make it a little bit easier for myself. I'd rather have control. I'd rather have the tightest security and try to get the best yield without giving too much commission away to others because they do make quite a rich commission if you're delegating. And it's fine to give some up, but there are, if you're smart, you can get essentially better pricing, better yield.

Yeah, just a quick one actually. I mean, would you agree that the staking yields in crypto are sort of uncorrelated to the yields that we see in traditional finance because of that underlying difference in the mechanism? We're talking about a debt-generated yield versus something that's just activity. In the crypto ecosystem. And if you do agree with that, where do you see yields going in the crypto sphere? Are they going to be compressed as the market matures, or is it literally just, we could see really healthy yields for quite some time as the market continues to grow?

Actually, I think the yields will trend lower. They already are lower than they were. And often that is by design. Obviously protocols don't just want to print new tokens generally. What, you know, if I look back at the experience, if you had a higher yield, it was essentially because people were printing tokens to attract people into a higher yield. But that is essentially inflation.

Well, which I suppose is why Maxis hate crypto because it's essentially just the debasement thing again.

Yes. And sadly, a lot of, and this particularly a few years ago with a lot of the DeFi protocols, not so much with proof of stake, but with DeFi, they were offering extraordinarily attractive through to literally unbelievably ridiculous yields, but they were fundamentally Ponzi schemes. Even if they weren't deliberately Ponzi schemes, they were by design because essentially they were printing tokens to pay those yields and using those attractive yields to get people in. But the smart ones would be in and they'd be out. So the later investors are providing the liquidity for the earlier investors to exit. And sadly that was the nature of it. But, you know, going back to what I was saying at the beginning, it was an early asset class and people were experimenting. In some cases it was malfeasance, in some cases it was just the nature of the design of the protocol.

Yeah. Yeah. Okay. Hopefully this wasn't too complicated for most of the audience and hopefully it wasn't, hopefully it was value add for the people that do know a bit about this stuff. But if somebody, has kind of got that foundational Bitcoin holding and they're looking into generating yield, what would you say is the one thing that they could do today to either learn more or just take that first kind of baby step into this market? What would you say?

Yeah, well, I, as you say, educate yourself, right? Do your own research. The old principle. If I could, you know, if I could sort of plug my own writing, I've, you know, I've written the book to pass on all my knowledge to others. And so I, you know, that, that is a way of, of somebody being able to almost take a curated education in all these different aspects of, of the digital asset space. So there's, there's plenty online, but there's also a lot of stuff that's, you know, very commercial and very pushed around. So, but there are some really good, you know, there are some really good educational resources and there's plenty available. I think the most important thing is there's no substitute for education and learning to build that confidence. And then, from there you can start to take the step forward. And in the meantime, the market's maturing as well. So, you know, as I said, we might even see before too long the fact that people can buy an ETF with integrated staking yield in it. And these will come in time. But again, there will always be that philosophical question between self-custody and third-party custody.

Yeah, yeah, I think that's right. Yeah, education is everything. And like you said, there's so many incredible free resources out there. So I'd suggest people, I'll put some links down below. I'd suggest people, I've got some free emails that can help you with this kind of stuff. Got Robin Davies' book. And then there's obviously one-to-one help that I offer too. I'll put the link below. But I hope that was helpful. And just let us know in the comments, any questions, anything that didn't make sense. Anything that you need to know more about, uh, Robin Davies and I can, can come back to you with, with answers. So really appreciate your time. And, uh, we'll probably do another one on, on these wider philosophical questions that we've touched on today.

Yeah, it'd be great. I look forward to that.

All right. Cheers, mate. Speak soon.

Thanks, Nick.