Macaulay Duration is a measure of a bond’s weighted average time to maturity, where the weights are the present values of the cash flows as a proportion of the bond’s total present value. In crypto, it applies to tokenized fixed-income instruments, indicating the average time an investor must hold the asset to receive its total present value, including interest payments.
Mechanism
The calculation sums the present value of each cash flow (coupon payments and principal) multiplied by the time until that cash flow is received, then divides this sum by the bond’s current price. This provides a single number representing the bond’s effective maturity. For crypto-native debt, this requires valuing future tokenized cash flows using appropriate discount rates, often linked to decentralized lending protocols or market-implied yields.
Methodology
Utilizing Macaulay Duration in crypto fixed-income portfolio management involves assessing the interest rate sensitivity of tokenized bonds. It helps investors match asset and liability durations, thereby minimizing exposure to interest rate risk. This analytical tool supports the construction of diversified portfolios and the hedging of positions within institutional crypto investing, offering a metric for managing time-value risk in digital asset debt.
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