Cryptocurrencies, tokens and stablecoins

Learning Outcome Statement

Explain investment features of digital assets and contrast them with other asset classes.

On the exam: The question gives a digital asset type, trading or custody facts, a quoted market value or comparison asset, and fees, then asks for a net calculation or a feature-based contrast in a table, matrix, or short calculation.

Digital assets are not one economic thing, so the name alone does not tell you what you own. A cryptocurrency is a native digital asset used as digital money or a store of value. A token can convey access, utility, or claims, so identify its rights and cash flows before comparing it with another asset. A stablecoin seeks a stable reference value, but reserves, collateral, redemption, governance, and peg risks make stability an objective, not a guarantee.

Read the middle column before trusting the label. A stablecoin's peg is an objective, while a bond's payment claim is contractual, so the two are not interchangeable.

When you sell a digital asset, a quoted price is only the starting point. Gross sale proceeds, $S$, are the sale value before fees. The trading fee, $f$, is a charge on $S$, and the custody fee, $c$, is a flat charge. Initial invested capital, $I$, is the amount used as the return base.

Use these amounts to move from gross proceeds to the investor's money-weighted holding-period return.

$$ \begin{aligned} \text{Net proceeds} &= S - f - c \ \text{Net return} &= \frac{\text{Net proceeds} - I}{I} \end{aligned} $$

$S$ starts the amount available to the investor. $f$ and $c$ reduce that amount. Dividing the net gain by $I$ measures the result against the investor's outlay. The position is unlevered invested capital, not committed capital, and the return is not time-weighted or multiple-based.

🔒Different digital asset forms connect investors to different rights and reference values

The visual separates asset forms by the rights and reference values they represent. Use that distinction to organize a comparison: first identify the claim, then ask whether it produces cash flow and how its value is observed. These questions keep a quoted token price from being mistaken for a contractual payment or a reliable exit value.

Do not compare labels alone. Ask whether the right creates cash flow, whether the value is live, and whether you can actually exit. These checks help separate economic exposure from the way a price happens to be reported. A live quote, a negotiated trade, and an estimate answer different questions, so select the label that matches the evidence in the vignette.

Use market value for a current quoted price, transaction value for an agreed trade price, and appraisal value for an estimate. A stale appraisal can distort a liquidity comparison because it is not a live exit quote. In an exam comparison, do not infer that an estimated value can be realized immediately; treat it as an estimate and consider how quickly a buyer and seller could complete an exit.

An investor needing dependable cash flow and stable redemption should separate a stablecoin's peg objective from a bond's contractual claim and cash's redemption feature. Suitability depends on liquidity, volatility, investor cash-flow needs, rights, and custody capability.

Worked example

You are handed a one-period cryptocurrency investment. You spend USD 10,000.00, the price change is $0.2$, and you sell at the quoted market value before charges. You need the gross sale proceeds, net proceeds, and one-period money-weighted holding-period return from the investor perspective.

The bars show the initial investment, the gross price gain, gross sale proceeds, the two fee deductions, and net proceeds. Read the sequence from left to right as a reconciliation of the investor's position: the price increase raises value, then each charge reduces the cash available. The final bar is the amount to use when calculating the gain after costs, while the earlier gross sale bar is only an intermediate amount.

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1. Apply the price change to the initial investment. The growth factor is $1 + 0.2 = 1.2000$, so gross sale proceeds are USD 12,000.00.
2. Apply the trading fee rate to gross sale proceeds because the charge is based on the sale value. $12,000.00 \times 0.015 = 180.00$, so the trading fee is USD 180.00.
3. Subtract the trading fee before custody because the investor pays both charges. $12,000.00 - 180.00 = 11,820.00$, so proceeds before custody are USD 11,820.00.
4. Subtract the flat custody fee to reach the cash the investor receives. $11,820.00 - 60.00 = 11,760.00$, so net proceeds are USD 11,760.00.
5. Subtract the initial outlay to isolate the investor's net gain. $11,760.00 - 10,000.00 = 1,760.00$, so net gain is USD 1,760.00.
6. Divide net gain by initial invested capital because return is relative to the investor's outlay. $\frac{1,760.00}{10,000.00}=0.1760$, the one-period money-weighted holding-period return.

The gross price gain is USD 2,000.00, but net proceeds are USD 11,760.00 and net return is $0.1760$, so use the net figure when judging the investor's outcome.

Changed condition

Only the trading fee rate changes.

Before looking at the right column, predict a larger trading deduction and lower proceeds. Gross sale proceeds remain USD 12,000.00 because the price change is unchanged, while the trading fee rises from USD 180.00 to USD 360.00. Net proceeds and net return fall because the higher fee is charged against gross sale proceeds. Before reading on, calculate the higher-rate net proceeds yourself.

Common error

You may quote the token's gross price gain as your return. It feels right because you can see the market price and made one initial outlay. When the facts give you a trading or custody charge, the investor pays that cost, so calculate net proceeds first and use them for the net return.

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