Opinion: James Harris, CEO of Tesseract Group
In an environment of tightening profits and increasing competition, yield is no longer optional but a necessity.
This gold rush mentality obscures a key truth that will determine the future of the industry: not all yields are created equal. The market's obsession with headline yields has left institutions facing catastrophic losses.
On the surface, the industry is full of opportunities. Protocols tout double-digit yields. Centralized platforms boast simple "yield" products. The market promises borrowers instant access.
These disclosures are not optional details for serious institutions; they mark the boundary between fiduciary responsibility and unacceptable risk.
The European Markets in Crypto-Assets (MiCA) framework has brought about structural changes. For the first time, digital asset companies can obtain authorization to provide portfolio management and yield services within the EU single market, including decentralized finance strategies.
This regulatory clarity is crucial because MiCA is not just a part of the compliance process; it represents the minimum standards demanded by institutions. However, the vast majority of yield service providers in the cryptocurrency space remain unregulated, exposing institutions to regulatory gaps that could lead to significant losses.
Most cryptocurrency yield products have a fundamental issue: their approach to risk management. Most self-service platforms push key decisions onto customers. But customers often lack the expertise to assess their actual risk exposure. These platforms require treasury and investors to choose lending counterparts, participate in liquidity pools, or trust certain strategies—an undoubtedly daunting task when boards, risk committees, and regulators need clear answers regarding asset custody, counterparty risk, and management measures.
This model creates a dangerous illusion of simplification. Behind user-friendly interfaces and enticing annual percentage yields (APY) lies hidden risks of smart contracts, counterparty credit exposure, and liquidity constraints. Most institutions find it difficult to fully assess these factors. As a result, many institutions unknowingly take on exposures that exceed what traditional risk frameworks can accept.
Achieving comprehensive risk management, counterparty review, and institutional-level reporting systems requires robust operational infrastructure. However, currently, most yield service providers lack this capability. This gap between market demand and operational capability also explains why many cryptocurrency yield products, despite heavy marketing, fail to meet institutional standards.
One of the most dangerous misconceptions is that higher APY means a better product. Many service providers exploit this psychology, promoting double-digit returns that far exceed conservative options. Yet these eye-catching figures almost always hide layers of undisclosed risks.
High interest rates often involve unverified decentralized finance protocols, smart contracts that have not been tested under market pressure, tokens that disappear overnight, and significant implicit leverage. These are not abstract risks; they are key factors that have led to significant losses in past cycles. For institutions accountable to boards, regulators, and shareholders, such hidden risks are unacceptable.
The APY-driven development trend is beginning to show its market impact. As institutional participation accelerates, the gap between yield products driven by marketing appeal and those based on sustainable risk management will quickly widen. Institutions that blindly chase high returns without understanding underlying exposures may ultimately face significant losses that should have been associated with conservative income products.
The market impact of this APY-centric approach is becoming increasingly evident. As institutional adoption accelerates, the gap between yield products prioritizing market appeal and those built on sustainable risk management will significantly widen. Institutions chasing headline yields without understanding potential risks may find themselves needing to explain substantial losses to stakeholders who assumed they were investing in conservative income products.
"Not all yields are of equal value" should become a new criterion for institutions assessing digital asset income opportunities. Yields without transparency are speculation; lack of regulatory support means uncontrolled risks; and inadequate risk management turns them into liabilities rather than assets.
Yields that truly meet institutional standards must combine compliance, operational transparency, and mature risk management systems—capabilities that are currently extremely scarce.
With regulatory frameworks like MiCA driving transformation in the cryptocurrency space, achieving truly institutional-level services has clear standards.
As MiCA is implemented in Europe, the cryptocurrency yield industry is undergoing a thorough regulatory clearing that will distinguish compliant service providers from those operating in gray areas. Various financial institutions in Europe will increasingly demand platforms that meet new standards, driving the need for legitimate licensing, transparent risk management disclosures, and compliant operational practices.
This regulatory clarity is expected to further promote industry consolidation, as platforms lacking robust infrastructure will struggle to meet increasingly stringent regulatory requirements. Ultimately, only those platforms that invest early in compliance will prevail, rather than those that focus solely on APY marketing gimmicks.
Digital assets are entering a new phase of institutional adoption. Yield generation must evolve accordingly. The choice facing institutions is no longer between high APY and low APY, but between providers offering sustainable, compliant yields and those prioritizing marketing over substance.
This evolution towards institutional standards for crypto yields is both inevitable and necessary. As the field matures, surviving providers will understand that in a complex world of institutional investors, not all yields are equal, and neither are the providers generating those yields.
As crypto becomes more deeply integrated into institutional portfolios, the demand for yields will continue to grow. The future belongs to specific types of providers—those offering attractive, defensive, compliant yields built on transparent risk management principles. The market is differentiating along these lines. Its impact will reshape the entire landscape of crypto yields.
Opinion: James Harris, CEO of Tesseract Group
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Original: Opinion: Compliant Cryptocurrency Yields Win, Institutions Demand Substance
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