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Institutions Gain Access to ADA Staking Through New ETP

Published 18.3.2024

The U.S. Securities and Exchange Commission (SEC) has given the green light to a Bitcoin ETF, sparking a surge of interest from institutional investors eager to capitalize on the burgeoning blockchain economy. These investors are searching for consistent returns with as little risk as possible. The staking of Proof-of-Stake (PoS) coins has become an appealing option, and its popularity is rising. In Europe, a Cardano ETP has received approval, allowing investors to engage in ADA staking.

Investors Can Profit From ADA Staking

The Switzerland-based protocol Liqwid Finance, in partnership with Issuance.Swiss AG, has launched an ETP. This ETP, known as CASL, not only captures the performance of ADA but also the interest earned by staking ADA coins.

CASL stands for Cardano Staking ETP. It’s the ticker symbol under which the Cardano Staking ETP trades on the SIX Swiss Exchange.

The staking of the ETP's ADA coins is carried out by Liqwid. The ETP is 100% backed by ADA coins held in a cold (offline) wallet.

While the specific schedule for the distribution of staking rewards for the CASL ETP isn’t detailed in the available resources, it’s noted that investors can anticipate a dual return on their investment. Given that the Cardano protocol allocates staking rewards every five days, it’s reasonable to expect that these rewards will be added to the investors’ balances. The Cardano protocol automatically stakes all ADA coins held in the wallet.

The CASL ETP is accessible to all kinds of investors. This includes both institutional and retail investors. It's designed to be a low-cost, liquid, institutional-quality product.

The SIX Swiss Exchange, based in Zurich, is Switzerland's principal stock exchange. It is a leading marketplace for Swiss equities, bonds, ETFs, ETPs, mutual funds, and structured products. It offers a Swiss-made, world-class platform for investors, issuers, and intermediaries.

CASL ETP opens the gates of staking to investors. For both retail and institutional investors, venturing into the realm of cryptocurrencies and staking can be a daunting task. The complexities of acquiring, securely storing, and staking digital assets, coupled with the fear of self-custody, can be intimidating. Hence, navigating this landscape can be a formidable endeavor for these investors.

While the CASL ETP might appear to centralize the network, it could enhance security by boosting ADA’s market value. The creation of more such products, or the addition of more independent staking pool operators (SPOs) to Liqwid Finance, would be beneficial.

Difference between ETP and ETF

People often ask what is the difference between an ETP and an ETF. Let's get this straight.

Exchange-Traded Products (ETPs) are a broad category of investment vehicles that track an underlying index, commodity, or financial instrument. They encompass a variety of investment types, including funds and commodities, and are traded on exchanges like stocks.

Exchange-Traded Funds (ETFs), on the other hand, are a specific type of ETP. They track an underlying basket of stocks and often mirror the performance of indices, sectors, or commodity prices. ETFs provide a transparent and effective way to invest in entire markets or specific economic niches without having to buy the underlying assets.

In Europe, the regulatory environment has specific requirements for ETFs. For instance, ETFs are often built around a collective investment scheme, predominantly of the UCITS type. This means they are subject to certain regulations and restrictions that may not apply to other types of ETPs.

The CASL product is an ETP, not an ETF because it's built around a unique concept: it not only tracks the performance of ADA coins but also the interest earned by staking the coins. This is a distinctive feature that does not fit into the traditional ETF structure.

Moreover, the CASL ETP is designed to be accessible to all kinds of investors.

The choice of CASL being an ETP rather than an ETF is likely due to the unique structure of the product and the regulatory environment in Europe.

Institutions Are Joining The Blockchain Revolution

The institutional demand for the staking of PoS coins is growing significantly. PoS has become one of the most popular consensus mechanisms not only because of its energy efficiency but also because it has created new opportunities for institutional investors to seek passive income via staking.

Institutional staking in crypto signifies the engagement of large investors—corporations, hedge funds, and financial institutions in the staking mechanisms of PoS blockchains. Institutions deploy significant assets to bolster network security to earn rewards and even influence governance (which may not always be desirable and will be the subject of debate).

After the transition of Ethereum from PoW to PoS, the demand for PoS staking has only increased. Institutional staking has emerged as a compelling avenue for financial growth and engagement in the blockchain ecosystem for various stakeholders.

There are similar ETPs for both Ethereum and Solana.

For example, 21Shares Ethereum Staking ETP (AETH) and 21Shares Solana Staking ETP (ASOL). Both ETPs track the performance of ETH and SOL respectively and deliver staking yields that are reinvested into the ETP for enhanced performance.

The introduction of the CASL ETP for Cardano paves the way for investors to access the same opportunities that are available with Ethereum and Solana.

Is CASL ETP better than Grayscales's GDIF?

Grayscale has introduced the Grayscale Dynamic Income Fund (GDIF), a unique offering that incorporates nine PoS blockchains, with a significant portion being lesser-known PoS blockchains.

The GDIF operates by selling staking rewards every week to generate USD. These USD rewards are then distributed to its clients quarterly. Notably, the GDIF does not reinvest staking rewards to boost its cryptocurrency holdings, so staking rewards do not grow either.

The primary objective of the GDIF is to maximize USD returns in a short timeframe, particularly during a bull market. However, it’s worth noting that the GDIF’s performance may falter in a bear market, leading to potentially diminished interest.

It is anticipated that the CASL ETP will accumulate staking rewards, thereby increasing investors’ exposure to ADA coins and subsequently boosting their staking rewards. This strategy allows investors to stake during bear markets and reap the benefits of staking rewards solely during bull markets, which could be a more intelligent approach to staking.

Nonetheless, it’s important to note that institutional behavior is unpredictable due to the lack of historical precedents.

Conclusion

The increasing institutional interest in staking PoS coins signifies a growing desire to participate in the blockchain revolution. However, this influx of substantial investments can also raise concerns, as wealth often comes with a pursuit of influence. Large-scale ADA investors could potentially become influential players in Cardano’s governance. The future will reveal how this dynamic unfolds.

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