To keep it simple, there are two ways to introduce crypto into your portfolio: Direct and Indirect. We'll cover both models in-depth below.
Direct Crypto Models
Direct models capture scenarios where end users desire to interact directly with the cryptocurrency space, carrying out activities such as trading coins, staking those coins to receive network rewards, or participating in more advanced decentralized finance mechanisms. Let’s discuss a few of these options.
Trading (Buy, Hold, Sell, Swap)
Cryptocurrencies can be bought, sold, or swapped similar to how traditional currencies are exchanged on FX markets. Millions of people are now interested in getting direct exposure to crypto, and want to purchase coins directly. Trading offers the ability to swap traditional fiat currencies for their equivalent value in a cryptocurrency such as Ethereum.
Trading doesn’t have to be the full-on experience you might be familiar with from advanced or high-frequency trading solutions. Instead, a basic form of trading can be introduced to users that allow them to simply trade between fiat currencies and the top crypto coins in circulation. The experience can be painless and easy to understand for beginners, even if they have never traded a cryptocurrency or stock in their lives.
Staking is the process of locking owned coins or tokens into a network to support network operations like approving transactions. Taking certain coins and tokens, and locking them into validators, users are able to earn a staking reward for participating in network consensus. These rewards create a significantly higher APY that would be typical on fiat currency savings accounts, often as high as 5% and beyond.
Decentralized Finance (DeFi)
Beyond buying, selling or staking coins and tokens, there is a growing catalog of dApps, or Decentralized Applications, that allow users to explore innovative financial instruments that have been designed just for cryptocurrencies. Decentralized Finance (“DeFi”) is the broad term given to a subset of dApps focused on creating and providing financial tooling to Web3 users. The tooling includes a wide variety of applications from non-custodial liquidity markets to decentralized over-collateralized multi-asset backed stablecoins.
These services can be made available to more sophisticated end users who are more familiar with buying and holding cryptocurrencies, and are interested in exploring more advanced experiences and opportunities.
Lending and Borrowing
While this is a general DeFi capability, lending and borrowing activities are large enough to call out separately. This function is available to users as a result of DeFi, but also the result of bridging Web2 and Web3, and enables users to lend and borrow assets for yield. There are many dApps that offer borrowing and lending services, along with corporations that offer a more traditional lending setup. Ultimately, these solutions are used to generate a yield on assets the users own, or to gain extended leverage for investment activity.
Indirect Crypto Models
While some organizations and users desire to interact directly with cryptocurrency, others may like to benefit from an indirect offering that let’s users just put a toe in the water. That’s where rewards can really shine as an initial channel to offer exposure to cryptocurrency.
Loyalty & Reward Programs
Loyalty and reward programs are all about offering products and services that entice users, so why not entice them by earning popular cryptocurrencies such as Bitcoin or Ethereum? With the popularity surrounding the space, adding cryptocurrency is a great addition to any loyalty program. Here’s just a few ideas for crypto rewards:
- Crypto Back: Provide instant 2% “crypto back” on purchases
- Engagement: After X visits or transactions, reward with Y in cryptocurrency
- Reward Interest: All interest earned on savings accounts is paid in crypto
- Reward Matching: Split savings account deposits - half in money, half in crypto
- Loyalty Usage: Reward user activity in crypto instead of in points
- Loyalty Spend: For every $X dollars spent, receive Y in cryptocurrency
- Referrals: After X number of referrals, reward with Y in cryptocurrency
- Fee-based Royalty: Upgrade to the ‘premium’ loyalty package and earn X in crypto
Crypto Gift Cards
With the popularity of Crypto, it makes for a great birthday gift or stocking stuffer regardless if the person is already heavily invested or just starting to dip their toes. Most people now recognize popular coins like Bitcoin or Ethereum, and adding a crypto gift card to someone’s present can increase the uniqueness factor.
In a more professional setting, crypto can also play a growing role in employee rewards. Rather than passing out a $50 Amazon gift card for recognition, there’s increasing demand for rewards in crypto. Receiving the equivalent of $50 worth of Bitcoin has a totally different feel to it, and forward leaning organizations are jumping in. Whether the card is physical or digital, gift cards loaded with cryptocurrency will become more commonplace.
Jump into Part 3 of this series, Regulation and Compliance.