Sharp crypto investment tools that aim to deliver added “oomph” to returns are rolling out in Europe.
- A pair of exchange-traded product (ETP) firms launched a slate of strategies that aim to deliver staking rewards, defined as passive income generated from holding a proof-of-stake blockchain’s native coin.
- But staking-made-easy, done via an investment vehicle, comes with significant tradeoffs.
Why it matters: The newest crypto ETPs tend to be launched first in Canada or Europe, where regulations allow them.
- Yet these products are proliferating, and people are pouring money into them in spite of the downturn. It means they could eventually see the light of day in U.S. markets.
Be smart: Staking is in-demand now, in part because folks want to be compensated for sitting on the sidelines while they wait for coin prices to move in the other direction.
- There are some 207 yield-bearing digital assets that pay an average rate of 9.1%, according to data compiled by Stakingrewards.com. And there are 229 staking service providers—DeFi, exchanges, wallets, and otherwise—to choose from ( Needless to say, that’s a lot of “Doing Your Own Research“).
What’s happening: CoinShares and 21Shares try to take the guesswork out of the strategy, having launched about a half dozen physically-backed staking ETPs on tokens like Polkadot, Tezos, Cardano and Solana.
How it works: CoinShares splits staking rewards from ETPs with buyers in the form of an annual yield, plus a reduced management fee of zero.
- CoinShares FTX Physical Staked Solana, for example, says it’ll deliver an annual 3% yield on top of solana price returns, even if customer assets theoretically could deliver more (or less) than that per year.
- CoinShares head of product Townsend Lansing explains to Axios: “Staking rewards are volatile and we smooth them out. So we think that’s a more transparent message, right. We want to make sure investors understand exactly what they’re getting and full knowledge,” he said. “There are no other hidden costs.“
- 21Shares Solana Staking ETP charges a 2.5% management fee, plus a 25% fee on earned staking rewards that the custodian and 21shares collects. The issuer does not market what yield a customer might expect from any of its staking ETPs. (Though, their website says there is “high-income potential” in “baking rewards.”)
Yes, but: These investment vehicles are also structured as debt obligations. That means buyers holding ETP shares are effectively holding IOUs from the issuer pledging to deliver returns, plus yield on whatever staking PoS is tracked by the ETP.
- Only it’s hard to say what to expect from those returns, in part, because it’s unclear what percentage of the underlying assets in those ETPs are staked.
- The issuers also share staking rewards with their customers, but it’s unclear what the take-rate for customers vs issuers are.
What they’re saying: Staking ETPs can’t stake 100% of assets due to a host of reasons including variable lockup periods, 21shares head of ETP product development Arthur Krause tells Axios.
- For example, Polkadot has a 28-day lockup period that would inhibit the firm from distributing funds back to investors in the event of substantial redemptions.
Of note: When Axios asked the shops what portion of the underlying assets were staked, they declined to answer. However, Krause agreed that somewhere between 0% and 100% would be accurate to report.