(Bloomberg) —
Two of the crypto world’s most prominent companies are teaming up in a strategic partnership, with the first venture being an exchange-traded product that seeks to utilize staking rewards to reduce costs for investors.
Crypto exchange operator FTX Trading Ltd. is joining with Europe’s largest digital asset brokerage, CoinShares International Ltd. to launch a physically-backed ETP tied to Solana, where the tokens underlying the product will be staked and returns shared with contributors. The ETP is the first product from FTX’s new institutional unit FTX Access, which launched earlier this month as a one-stop shop with advisory, trade execution and analytical tools.
The partnership provides FTX with a route into Europe’s crypto market, having launched its own unit on the continent earlier this month. Europe is one of the most mature markets for crypto ETPs, which offer a route into crypto investing without having to hold individual coins.
Staking, a process where traders lock up a portion of their tokens to help a provider validate blockchain transactions and receive rewards in return, has boomed in popularity as the promised yields rise as high as triple digits. In this case, staking the SOL tokens underlying the ETP provides CoinShares and FTX with additional revenue, which the providers can then share with investors by reducing the product’s management fee to 0.0% per year and also offering an additional staking reward of 3.0%.
The CoinShares FTX Physical Solana ETP will list on Germany’s Xetra exchange, alongside several other physically-backed staked ETPs from CoinShares which track tokens like Polkadot, Cardano and Tezos. A similar physically-backed Solana ETP issued by 21Shares launched in June last year with a 2.5% fee. It has generated a year-to-date loss of 38% as of Feb. 5 thanks to a downturn in crypto prices.
CoinShares said FTX will support the new product with seed capital of 1 million Solana tokens, worth roughly $91.4 million. FTX Chief Executive Sam Bankman-Fried is a long-time supporter of Solana, investing $314.2 million in the blockchain’s developer Solana Labs last year through his trading firm Alameda Research.
“We only want to launch products that are genuinely innovative and add value to our clients,” Bankman-Fried said in a statement on Wednesday, adding that FTX plans to collaborate with CoinShares on more offerings.
Crypto prices are notoriously volatile, which makes waves of redemptions more likely for a crypto ETP than one that tracks a basket of traditional equities, for example — a problem that only worsens in staking, where tokens can be locked up for long periods of time on some blockchains. Townsend Lansing, CoinShares’ head of product, said the firm’s internal staking agent helps it avoid running into liquidity issues by promising to lend coins to satisfy such redemptions, if they were to occur.
While most of the investors in CoinShares’ products to date are from a retail background, the two firms hope that creating more access to crypto via heavily regulated routes such as ETPs will entice institutional investors to pile into the space. Lansing said the lag in adoption is because institutional investors are still “getting up to speed with Bitcoin and Ethereum as a valid investment,” before they’ll consider smaller alternatives like Solana.
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