As yield surfaces multiply, the discipline of holding meaningful ETH outside of any contract has become quietly contrarian. We make the case.
The arithmetic against cold storage is straightforward. Ether held in a hardware wallet pays nothing. Ether held in a staked liquid token pays 3.2%. Across a portfolio of CHF 50 million, the difference is significant in any single year.
The arithmetic for cold storage is less obvious, and it concerns asymmetry.
A 10% allocation to cold ETH at the scale described above represents CHF 5 million. The expected cost of holding it that way for one year, against a stETH alternative, is approximately CHF 165,000 in foregone yield. That is the certain side of the equation.
The other side is the probability, however estimated, of an event that compromises the staked alternative. Smart contract failure, validator key compromise, protocol governance attack, regulatory seizure, exchange insolvency in the path of an LST. Each of these has a non-zero probability. We do not know how to price them with the precision we would in equities. We are reasonably confident that the aggregate probability is above 1% across a multi-year horizon.
At 1% probability of a 100% loss on the staked portion of a portfolio, the expected loss across the whole staked exposure exceeds the marginal yield earned by avoiding cold storage in the first place.
We are not arguing that staking is irresponsible — clients see in our standard mandates that we maintain 35% to 45% in liquid staking. We are arguing that the marginal allocation, particularly above a portfolio size where additional yield no longer changes the life situation of the client, should be cold.
We recommend physical hardware wallets stored across at least two geographies, with key custody split between principal and a designated estate executor.
We are sceptical of in-firm cold storage offered as a service by exchanges or custodians, however reputable. The legal classification of such holdings is ambiguous and varies across jurisdictions.
We discourage clients from announcing cold storage holdings to family or staff who do not require operational access. Discretion is the cheapest form of insurance.