Risk-Free Rate
Risk MetricThe Risk-Free Rate is the theoretical return available with zero risk, typically the US 10-Year Treasury yield (~4.2% in 2026), used as the benchmark in the Sharpe Ratio.
The risk-free rate represents the minimum return any rational investor demands for putting money to work at all — because you can always earn this return by buying US government bonds, which are considered default-free. Any investment must outperform the risk-free rate on a risk-adjusted basis to justify its additional risk.
In the Sharpe Ratio formula, the risk-free rate is subtracted from the asset's annualized return before dividing by volatility. If the risk-free rate is 4.2% and XRP returned −15% annualized, the excess return is −19.2% — negative even before dividing by volatility, guaranteeing a negative Sharpe.
This is why all ISO 20022 coins show negative Sharpe ratios in the 1-year window ending mid-2026: the US 10-year Treasury was yielding ~4.2%, and crypto returns were mostly negative. Setting the risk-free rate to 0% in the Risk Dashboard shows the raw return-to-volatility ratio without the Treasury comparison.
Worked example: at a 4.2% risk-free rate, a coin returning 10% has a positive excess return of 10% − 4.2% = 5.8% (the part that actually beat Treasuries); a coin returning 2% has a negative excess return of 2% − 4.2% = −2.2%, which forces a negative Sharpe no matter how low its volatility.
Crypto Relevance
A high risk-free rate (4.2% in 2026) is a headwind for crypto Sharpe ratios — it raises the bar that any investment must clear to show a positive risk-adjusted return. When rates drop, crypto Sharpe ratios mechanically improve. Informational only, not investment advice.
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Join ISO 20022 investorsRelated Terms
Sharpe Ratio
Sharpe Ratio is a measure of risk-adjusted return calculated as (annualized return − risk-free rate) ÷ annualized volatility.
Sortino Ratio
Sortino Ratio is like the Sharpe Ratio but only penalizes downside volatility, making it better for assets like crypto where large upside moves are common and desirable.
Risk-Adjusted Return
Risk-adjusted return measures how much return an investment produced relative to the risk taken to earn it, not just the raw gain.
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Last reviewed: 2026-07-03