Crypto staking ETPs are rolling out in Europe, but they are not so easy to understand

Sharp crypto investment tools that aim to give increased “oomph” to returns are being rolled out in Europe.

• A pair of exchange-traded products (ETPs) launched a list of strategies that aim to deliver strike rewards, defined as passive income generated from holding a proof-of-stake blockchain’s native coin.
• But staking-made-easy, done via a investment car, comes with significant trade-offs.

Why it matters: The newest crypto ETPs tend to be launched first in Canada or Europe, where regulations allow them.

• Nevertheless, these products are spreads, and people are pouring money into them despite the downturn. That means they may finally see the light of day in American markets.

Be smart: Staking is in demand now, in part because people want to be compensated for sitting on the sidelines while they wait for coin prices to move in other direction.

• There are around 207 yield-bearing digital assets that pay an average rate of 9.1%, according to data compiled by Stakingrewards.com. And there is 229 strike service providers—DeFi, exchanges, wallets and more – to choose from (Needless to say, there is a lot of “Doing Your Own Research”).

What’s up: CoinShares and 21Shares are trying to take the guesswork out of strategy, having launched about half a dozen physical-backed ETPs on tokens such as Polkadot, Tezos, Cardano and Solana.

How it works: CoinShares shares stake rewards from ETPs with buyers in the form of an annual return, plus a reduced management fee of zero.

• CoinShare’s FTX Physical Staked Solana, for example, says it will deliver a 3% annual return on top of the solana price return, although client funds could theoretically deliver more (or less) than that per year.
• CoinShares chief product officer Townsend Lansing explains to Axios: “Stake rewards are volatile and we smooth them out. So we think it’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 management fee of 2.5%, plus a 25% fee on earned stake rewards collected by the custodian and 21shares. The issuer does not market the returns a customer can expect from any of its ETPs. (Although their website says there is “high earning potential” in “bake rewards.”)

Yes, but: These investment instruments are also structured as debt obligations. That means buyers who hold ETP shares are actually holding IOUs from the issuer as collateral deliver return, plus return on any stake PoS is tracked by ETP.

• It’s just that it’s hard to say what you can expect from these returns, in part because it’s unclear what percentage of the underlying assets in these ETPs are staked.
• Issuer as well share stake rewards with their customers, but it is unclear what the acceptance rate for customers versus issuers is.

What they say: Staking ETPs cannot stake 100% of assets due to a number of reasons, including variable lock-up periods, 21shares head of ETP product development Arthur Krause told Axios.

• For example, Polkadot has a 28-day lock-up period that will prevent the firm from distributing funds back to investors in the event of significant redemptions.

Of note: When Axios asked the stores what portion of the underlying assets had been staked, they declined to answer. However, Krause agreed that somewhere between 0% and 100% would be accurate to report.