Encryption Wealth Management vs Traditional Wealth Management: A Risk Avoidance Guide Under the Temptation of High Returns

The traditional wealth management market has recently shown lackluster performance, with bank savings interest rates generally falling to the range of 1%-2%, and some money market funds even yielding below the inflation rate. Meanwhile, the cryptocurrency wealth management market presents a different picture: some platforms have launched stablecoin wealth management products with annualized returns of up to 10% by collaborating with Decentralized Finance (DeFi) protocols.

However, high returns are often accompanied by high risks. The cryptocurrency market lacks true on-chain fixed income products, and existing yields mainly depend on factors such as lending interest rate spreads, funding rates, and leverage, unlike traditional finance (TradFi) fixed income systems that rely on corporate cash flow to provide stable returns of 5-6%.

01 Yield Comparison: The Huge Gap Behind the Numbers

Traditional bank wealth management currently has generally low returns. The five-year fixed deposit interest rate of state-owned banks is only 1.55%, almost halved compared to the previous few years' rate of 3%. Money market funds and government bond yields also hover between 2% and 3%, making it difficult to even outpace inflation.

The encryption wealth management market presents a different landscape. Some CeDeFi (a combination of centralized and decentralized) products offer USDT/USDC flexible wealth management products with a maximum annualized return of up to 10% or even higher.

This discrepancy in returns means that: assuming an investment of $10,000, a bank's fixed deposit for one year yields about $250, while crypto wealth management could bring returns of over $1,000.

02 Operational Mechanism: Completely Different Financial Management Models

The returns from traditional bank wealth management mainly come from the interest rate spread. Banks use deposits for loans, and the interest rate difference determines the level of returns, with many intermediary steps and a high commission rate.

The sources of income from encrypted financial management are more diversified:

• CeFi wealth management: Funds are lent to users with leverage trading needs on the exchange, and the platform collects interest and allocates a portion to depositors.
• DeFi Wealth Management: Access decentralized lending protocols (such as Aave) through smart contracts to directly earn on-chain lending interest.
• CeDeFi Hybrid Model: Invest user funds into lending pools of protocols like Aave to obtain basic returns, and then enhance the yield through platform subsidies.

Encryption wealth management attempts to return more value to users by reducing intermediaries in traditional finance, but it also introduces new dimensions of risk.

03 Risk Analysis: Identifying Warning Signals of Two Investment Methods

Any financial return is accompanied by risk. The high returns of crypto finance also correspond to risk characteristics that differ from traditional finance.

Main risks of traditional wealth management:

• Inflation Risk: Returns may be lower than the inflation rate, leading to a decrease in purchasing power.
• Credit Risk: Bank bankruptcy (but most are protected by deposit insurance)
• Market Risk: The fluctuations in the bond market and stock market affect the net value of financial products.

encryption financial management additional risks:

• Legal Risks: China explicitly states that activities related to virtual currencies are considered illegal financial activities, and participating in virtual currency investment and trading activities carries legal risks.
• Technical Risk: Smart contracts may have vulnerabilities or be attacked.
• Platform Risk: Centralized exchanges may go bankrupt, be hacked, or freeze withdrawals.
• Stablecoin Decoupling Risk: Even mainstream stablecoins have experienced temporary decoupling situations.
• Leverage Liquidation Risk: The leveraged cryptocurrency market poses systemic risks due to volatility and chain liquidations.

The collapses of major lending platforms in 2022 and the liquidation event of $852 million in the third quarter of 2025 both reveal the high risks of the encryption market.

04 Warning Signs: How to Identify Unreliable Encryption Projects

Even if you decide to explore encryption wealth management, you need to identify potential scams. Here are some key danger signals:

1. Constantly attacking competitors: Reliable projects usually focus on their own development rather than attacking competitors.
2. The team flaunting their wealth on social media: Founders overly focused on a luxurious lifestyle may indicate they are not sufficiently dedicated to the project's development.
3. Posts released by the project parties resemble "The Book of Heaven": The excessive use of popular terms and complex expressions is often to cover up the lack of substantial content.

05 Compliance and Security: Advantageous Areas of Traditional Wealth Management

Traditional wealth management has obvious advantages in compliance and investor protection. Although bank wealth management products no longer guarantee principal and interest, they are subject to strict regulation and have high information disclosure requirements.

The traditional investment market is relatively mature and stable, with high liquidity and transparency, allowing investors to obtain relevant information through various channels.

Most importantly, the regulation of traditional financial markets is relatively strict, and the rights and interests of investors are well protected. In China, bank deposits are also covered by a deposit insurance system, with a maximum compensation of 500,000 yuan per person per bank.

06 Asset Allocation: Make Reasonable Choices Based on Risk Preference

The choice of financial management methods should be based on one's own situation.

Traditional banking wealth management is suitable for:

• Investors with a lower risk tolerance
• People who are unfamiliar with cryptocurrencies
• Emergency funds needed for short-term use
• Investors approaching retirement age or needing stable cash flow

Encryption wealth management is suitable for:

• Investors with a high risk tolerance
• People who already hold or are willing to learn about encryption assets
• Users who can accept potential principal loss
• As a small proportion of high-risk part in asset allocation.

Diversification is key. It is recommended to allocate the majority of assets to traditional finance and only allocate a small portion (typically no more than 5-10% of the portfolio) to encryption assets.

The biggest difference between encrypted wealth management and traditional wealth management is not only reflected in the yield rate but also in the fundamental structural differences and risk characteristics. Traditional finance relies on intermediary institutions but offers more protection; encrypted wealth management reduces intermediaries through blockchain technology but comes with higher risks and regulatory uncertainties.

Conclusion

For investors, the key is not to chase the highest interest rates, but to find a financial management method that matches their own risk preferences and knowledge reserves. If you can understand and accept the associated risks, cryptocurrency financial products can become an attractive small part of asset allocation, but one must be cautious of promises of "high returns and guaranteed profits," as these are often common signs of investment traps.

In the future, as regulatory frameworks improve and technology matures further, the boundaries between encryption wealth management and traditional wealth management may gradually blur. However, at present, cautious selection, risk awareness, and appropriate diversification remain key principles in wealth management decision-making.