This innovative transaction enables institutional investors, staking providers, and Ethereum network users to manage risk around Ethereum staking yields and transaction costs and lock in fixed rates of return.
FalconX (dba Solios), a provider of digital asset prime brokerage, trading, and derivatives services for institutional clients, through FalconX Solios, completed the first fixed-floating swap on the Ethereum staking rate, using CESR, the composite ether staking rate. This innovative and groundbreaking transaction enables institutional investors, staking providers, and Ethereum network users to manage risk around Ethereum staking yields and transaction costs and lock in fixed rates of return.
CESR is a benchmark rate for Ethereum staking rewards, published daily by CoinDesk Indices, the leading provider of digital asset indices since 2014. CESR was brought to market in 2023 by CoinDesk Indices in partnership with CoinFund, a leading Web3 and crypto-focused investment firm and registered investment adviser.
“FalconX is pleased to have executed the first-ever trade on CESR as part of our goal to ensure our clients have access to the widest range of derivative products in the market,” said Josh Barkhordar, Head of US Sales at FalconX. “The use of new derivative instruments to express a view on the ether staking rate is another step toward the integration of traditional financial markets and digital assets.”
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Following Ethereum’s evolution from Proof-of-Work to Proof-of-Stake with “The Merge” in September 2022, which bolstered network security and reduced its energy consumption, validators now earn rewards through protocol emissions and transaction fees, establishing a native interest rate for staking ether (ETH). CESR standardizes this interest rate, facilitating a consistent benchmark for staking and derivative contract settlements. The introduction of CESR in an over-the-counter (OTC) interest rate swap format opens up avenues for institutions to explore yield opportunities within the ETH staking ecosystem.
“CESR stands as a cornerstone for the crypto asset class, enabling the development of financial products such as loans, bonds, and derivatives,” said Alan Campbell, President of CoinDesk Indices. “We’re thrilled to see FalconX pioneering in this space, using CESR to foster new crypto-based finance.”
In traditional finance, interest rates underpin the largest markets in the world and serve as a fundamental pillar of economic activity. Staking rates can do the same for the crypto industry by delivering a new class of standardized benchmarks, powering next-generation financial products, improving risk management, and unlocking new functionality for institutions and consumers alike.
“Staking rates are to crypto what interest rates are to traditional financial markets. CESR was designed to spur investment product growth across global finance, thereby enhancing investor stability and risk management,” said Chris Perkins, President of CoinFund. “We see this as a defining moment for the industry as FalconX brings the $500 trillion interest rate swap market to the crypto asset class.”
Basis swaps can serve as a new on-ramp for investors who have a view of the relative trajectory of traditional interest rate yields versus those of staking rates. Two firms currently participating in the swaps include Multicoin Capital, a thesis-driven investment firm that invests in cryptocurrencies, tokens, and blockchain companies reshaping trillion-dollar markets, and Parataxis Capital, a multi-strategy investment firm focused on the digital asset sector.
“CESR is an important financial tool that helps institutional managers like us better express our views on the staking rate’s trajectory. As history has shown, interest-rate swaps are one of the most important primitives in financial markets. In that regard, CESR promises to bring more stability and expressibility to crypto. We commend FalconX for their innovation, and are honored to support the adoption of CESR,” said Tushar Jain, Managing Partner, Multicoin Capital.
“As a firm committed to innovation across digital assets, we are happy to participate in this inaugural transaction. We believe the advent of structured products in this space will introduce opportunities to not only express a view on novel areas within the ecosystem but to do so in a manner that is risk-managed and capital efficient,” said Thejas Nalval, Co-CIO of Parataxis Capital.
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