joellewis/digital-assets
Analyze digital assets including cryptocurrency fundamentals, blockchain mechanics, DeFi protocols, and on-chain metrics. Use when the user asks about crypto investing, Bitcoin, Ethereum, staking yields, DeFi lending, impermanent loss, or on-chain valuation metrics. Also trigger when users mention 'blockchain', 'proof of stake', 'proof of work', 'smart contracts', 'NFTs', 'stablecoins', 'NVT ratio', 'TVL', 'crypto portfolio allocation', 'halving', or ask about risks and returns of cryptocurrency.
npx skills add https://github.com/JoelLewis/finance_skills --skill digital-assetsA distributed ledger maintained by a network of nodes. Transactions are grouped into blocks, cryptographically linked in sequence. Immutability comes from the chain structure — altering any block requires recomputing all subsequent blocks. Consensus mechanisms determine how the network agrees on the valid state of the ledger.
Proof of Work (PoW): Miners compete to solve computational puzzles. The winner adds the next block and earns a reward. High energy consumption but battle-tested security (Bitcoin). Security scales with hash rate.
Proof of Stake (PoS): Validators lock up tokens as collateral ("stake"). Block proposers are selected based on stake weight. Slashing penalizes malicious behavior. Far more energy-efficient than PoW. Ethereum transitioned to PoS in September 2022.
Fixed supply of 21 million coins, enforced by protocol rules. Block reward halves approximately every 4 years (halving cycle), reducing new supply issuance. The block reward is 3.125 BTC following the April 2024 halving (next halving expected ~2028, dropping to 1.5625 BTC). Mining reward = block reward + transaction fees. Scarcity narrative drives the "digital gold" thesis.
The leading smart contract platform. The Ethereum Virtual Machine (EVM) executes arbitrary programs (smart contracts). Gas fees compensate validators for computation. EIP-1559 introduced a base fee that is burned (destroyed), making ETH potentially deflationary when network usage is high. The merge to PoS (Sept 2022) reduced energy usage by ~99.95%.
For Proof of Stake networks:
Staking Yield = (Rewards + MEV Tips - Validator Costs) / Staked Amount
Rewards come from new token issuance and transaction fees. MEV (Maximal Extractable Value) provides additional income from transaction ordering. Validator costs include hardware, bandwidth, and the risk of slashing. Real yield (after accounting for inflation of token supply) can be significantly lower than nominal yield.
The constant product formula: x * y = k
where x and y are the reserves of two tokens in a liquidity pool. Price is determined by the ratio of reserves. Large trades cause slippage (price impact proportional to trade size relative to pool depth).
The loss that liquidity providers experience relative to simply holding the tokens when prices change:
IL = 2 * sqrt(p_ratio) / (1 + p_ratio) - 1
where p_ratio = new_price / old_price for one token relative to the other. At a 2x price change, IL is approximately 5.7%. At a 5x change, IL is approximately 25.5%. "Impermanent" because the loss reverses if prices return to original levels — but it becomes permanent if the LP withdraws at diverged prices.
No universally accepted model. Approaches include:
Self-custody: Hardware wallets (Ledger, Trezor) or software wallets. User controls private keys. "Not your keys, not your coins." Risk of loss if keys are lost.
Custodial: Exchanges (Coinbase, Kraken) or qualified custodians hold assets on behalf of users. Convenience but counterparty risk (e.g., FTX collapse).
Regulatory treatment is evolving. In the US, crypto is generally treated as property for tax purposes — each sale, exchange, or use is a taxable event. Securities classification (Howey test) remains contentious for many tokens. Regulatory clarity is improving but varies significantly by jurisdiction.
| Formula | Expression | Use Case |
|---------|-----------|----------|
| Staking Yield | (Rewards + MEV - Costs) / Staked Amount | Validator return |
| Impermanent Loss | 2*sqrt(p_ratio)/(1+p_ratio) - 1 | LP loss from price divergence |
| AMM Price | Price_x = y/x (for token x in terms of y) | DEX pricing |
| NVT Ratio | Market Cap / Daily On-Chain Tx Volume | Network valuation metric |
| Real Staking Yield | Nominal Yield - Token Inflation Rate | Inflation-adjusted return |
Given: 32 ETH staked (one validator), 4.5% APR nominal yield, ETH price = $3,000
Calculate: Annual rewards in ETH and USD
Solution:
Annual ETH rewards = 32 ETH × 4.5% = 1.44 ETH
Annual USD value = 1.44 ETH × $3,000 = $4,320
Total staked value = 32 × $3,000 = $96,000
If ETH supply inflation is approximately 0.5% per year (net of EIP-1559 burns), the real staking yield is roughly 4.5% - 0.5% = 4.0%. Note that the USD return depends entirely on ETH price changes — a 10% decline in ETH price would far exceed the 4.5% staking yield.
Given: A liquidity provider deposits equal value of ETH and USDC into a Uniswap pool. ETH price doubles from $2,000 to $4,000.
Calculate: Impermanent loss
Solution:
p_ratio = $4,000 / $2,000 = 2.0
IL = 2 × sqrt(2.0) / (1 + 2.0) - 1
IL = 2 × 1.4142 / 3.0 - 1
IL = 2.8284 / 3.0 - 1
IL = 0.9428 - 1 = -0.0572 = -5.72%
The LP's position is worth 5.72% less than if they had simply held the tokens. If the pool earned 8% in trading fees over the period, the net return is 8% - 5.72% = 2.28% — still positive but substantially reduced. If ETH had tripled (p_ratio = 3), IL would be approximately 13.4%, potentially exceeding fee income.
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