How Does the Cost of Equity Differ from the Cost of Debt in Crypto Financing?

The cost of equity in crypto is the required return for token holders, which is extremely high due to the volatile and speculative nature of the asset. The cost of debt is the interest rate a protocol pays for borrowing, often through decentralized lending platforms.

Most crypto projects are equity-financed (token sales), making the cost of equity the dominant factor in the Weighted Average Cost of Capital (WACC). Debt is often less prevalent, but its cost is also high due to smart contract and counterparty risk.