Exploring the Digital Asset Ecosystem
The digital asset sector has undergone a rapid expansion over the past couple of years, growing in value and functionality.
Beyond the price growth of popular cryptocurrencies, digital assets are powering innovative applications that enable value transfer beyond just payments. From tokens that grant dividend-like revenue to holders, to tokens backed by other digital and physical assets, the digital asset ecosystem is redefining asset and financial structures before our very eyes.
The Functions and Types of Digital Assets
Digital assets can be broken down into three different types of assets that fulfill three primary functions. The first two functions of digital assets, store of value and medium of exchange, are well established functions of digital and traditional assets.
However, a third functionality of being able to pass through values to holders has emerged, with benefits like discounted application fees, governance voting rights, and monetary rewards passed onto token holders.
These functions are fulfilled by three main types of digital assets:
- Currency: tokens that are a unit of account and medium of exchange
- Asset-backed tokens: tokens backed by hard assets like equity, debt, or physical assets
- Pass through tokens: tokens that grant revenues, rewards, and network benefits to holders
Many know of Bitcoin, the founding cryptocurrency that functions as a digital currency today. Along with this, tokens whose value is backed by other assets like Arca Lab’s ArCoin (Ticker: RCOIN) are also straightforward in nature and functionality.
Pass through tokens are where digital assets explore innovative concepts and structures unique to the blockchain networks that underpin the assets.
For example, cryptocurrency exchange FTX issued an exchange token (FTT) at launch, which provides holders with reduced trading fees on the platform. FTT holders can also stake, or lock up, their tokens to receive increased referral rebates, more votes in FTX polls, and more airdrop rewards (tokens exclusively given out to holders or stakers of another token).
Classifying Governance and Decentralization
Along with token types and their functionality, it’s important to understand the governing bodies and governance structures behind digital assets.
The governing body is the entity that issues and controls the function of a digital asset, ultimately defining the purpose and proposed value of a digital asset. These range from centralized governments and organizations, like the government of the Bahamas (issuer of the CBDC, the Bahamian Sand Dollar) to Decentralized Autonomous Organizations and blockchain protocols like Ethereum (ETH) and Solana (SOL).
|Governing Body||Governance Structure|
|Decentralized Autonomous Organizations (DAOs)||Decentralized|
|Protocols, Platforms, and Dapps||Typically decentralized|
Governance structures define the framework and procedures which decide and implement changes for a digital asset. These changes can be about anything, like the digital asset’s tokenomics, pass through values, or future development goals.
While some governing bodies like governments and organizations have centralized governance structures, centralization and decentralization isn’t all or nothing and can be seen as more of a spectrum.
Certain DAOs or protocols might have a core team of developers that propose certain features, which are then voted on and ultimately decided by the holders of the digital asset.
The Future of Traditional Assets in a Digital Framework
With an established taxonomy of digital assets, we can start to map out how traditional assets fit into this framework.
From tokenizing real estate and commodities for easier digital exchange and settlement to equity-like tokens issued by companies that provide holders with voting rights or non-financial rewards, digital assets will reshape the traditional asset structures of today.
By providing unbound and transparent asset structures, digital assets are providing people around the world with more freedom in storing, transferring, and accruing value.
Go to Ar.ca to learn more about digital assets today.
Retirement Spending: How Much Do Americans Plan to Spend Annually?
Retirement expenses can vary significantly from person to person. In this graphic, we show the range of expected retirement spending.
Americans’ Expected Annual Retirement Spending
Planning for retirement can be a daunting task. How much money will you need? What will your retirement spending look like?
It varies from person to person, based on factors like your health, outstanding expenses, and desired lifestyle. One helpful trick is to break it down into how much you estimate you’ll spend each year.
In this graphic from Personal Capital, we show the expected annual retirement spending of Americans. It’s the last in a three-part series that explores Americans’ spending and savings.
The Range of Retirement Spending
To determine how much people expect to spend, we used anonymized data from users of Personal Capital’s retirement planning tool. It’s worth noting that these users are proactive regarding financial planning. They also have a median net worth of $829,000 compared to the $122,000 median net worth of the U.S. population overall.
Here is the range of expected annual retirement spending.
|Expected Annual Retirement Spending||Percent of People|
Users are a mix of single individuals and people in a relationship. In all cases, expected retirement spending is what the household expects to spend annually.
The most commonly-cited expected spending amount is $60,000. Interestingly, this is roughly in line with what Americans spend annually on their credit cards. This suggests that people may be using their current bills to help gauge their future retirement spending.
Median spending, or the middle value when spending is ordered from lowest to highest, falls at $70,000. However, average spending is a fair amount higher at $100,000. This is because the average is calculated by adding up all the expected retirement spending amounts and dividing by the total number of users. Higher expected spending amounts, some in excess of $300,000 per year, skew the average calculation upwards.
Of course, given their higher net worth, it’s perhaps not surprising that many Personal Capital users expect to spend larger amounts in retirement. How does this compare to the general population? According to the Bureau of Labor Statistics, Americans age 65 and older spend about $48,000 per year on average.
Chances of Retirement Success
Once you’ve determined how much you’ll spend in retirement, your next step may be to wonder if your savings are on track. Based on an assessment of Personal Capital retirement planner users, here is the breakdown of people’s chance of success.
The good news: more than half of people have an 80% or better chance of meeting their retirement spending goals. This means they have sufficient financial assets and are contributing enough, regularly enough, to meet their expected spending amount. The not so good news: one in five people has a less than 50% chance of meeting their goals.
This problem is even more troublesome in the overall U.S. population. Only 50% of people have a retirement account, and the Center for Retirement Research at Boston College estimates half of today’s workers are unprepared for retirement.
Setting Your Own Retirement Spending Goals
While seeing the goals of others is a starting point, your annual retirement spending will be very specific to you. Not sure where to start?
Financial planners typically recommend that you should plan on needing 70-80% of your pre-retirement income in retirement. This is because people generally no longer have certain expenses, such as commuting or childcare costs, when they retire. However, keep in mind your expenses could be higher if you still have a mortgage, encounter unforeseen medical expenses, or want to splurge on things like travel when you retire.
It requires some upfront planning, but being realistic about your retirement spending can give you confidence in your financial future.
Navigating Market Volatility: Why ETFs Are Critical Tools
Historically, the trading volume of ETFs has spiked during market volatility. We explore why ETFs are preferred by institutional investors.
Download the ETF Snapshot for free.
Why ETFs Are Critical Tools During Market Volatility
Investors experienced record-breaking volatility in 2020. During COVID-19 market turbulence, the CBOE Volatility index surpassed the previous peak seen in 2008.
In this infographic from iShares, we explore how ETFs rose in popularity during this time—and the characteristics that make them particularly useful during market volatility. It’s the first in a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how institutional investors manage volatility.
To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.
For instance, here is how responses broke down by location:
- 21% Asia Pacific
- 36% North America
- 29% Europe, Middle East and Africa
- 14% Latin America
Here’s what the survey found.
Rebalancing During Market Volatility
In total, 90% of institutional investors said they rebalanced their portfolios between the first and third quarter of 2020. How did they do it?
Among all financial tools, ETFs were the most popular vehicle for rebalancing. For instance, ETFs were used by 70% of investors globally, compared to the 51% who used mutual funds or derivatives.
The popularity of ETFs was evident in market activity. From January to March 2020, ETFs as a proportion of total equity trading volume increased.
|January 2020||February 2020||March 2020|
|ETF trading volume||$95B||$136B||$240B|
|ETF as % of equity volume||26%||27%||36%|
Based on an average of daily values. Reflects all listed U.S. ETFs across all asset classes.
This trend is true historically as well, as ETF trading volume has typically spiked during periods of volatility.
Want more institutional insights into ETFs?
Download The ETF Snapshot for free.
The Attributes Driving ETF Usage
Why are ETFs preferred by institutional investors? They offer three key characteristics:
- Liquidity: ETFs make it much simpler to buy and sell large portfolios instantly, instead of trading individual securities.
- Transparency: Among multi-asset managers, transparency of holdings is the top reason for using ETFs. A clear holdings breakdown helps these managers achieve exposures to particular asset classes, sectors, and styles.
- Efficiency: ETFs can be traded quickly. They typically also have lower transaction costs relative to the underlying basket of securities.
Based on these key benefits, ETFs were an invaluable tool during extreme market volatility.
ETFs are also poised to help institutional investors navigate the market going forward. Globally, 65% of institutional investors plan to increase their use of ETFs in the future.
In fact, this is already coming to fruition. As of September 2021, the average daily trading volume of ETFs was up more than 5% compared to 2020.
Evidently, ETFs play a critical part in helping institutional investors achieve their goals.
Download the ETF snapshot for free.
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