CoinShares has expanded its range of physically backed crypto exchange-traded products (ETPs) by launching two new offerings: the Physical Staked Polkadot ETP and the Physical Staked Tezos ETP. These innovative products are now available on Germany’s Xetra exchange and are designed to provide investors with staking rewards directly.
How Staking Rewards Work in ETPs
Proof-of-stake blockchains, such as Polkadot and Tezos, require holders to stake their cryptocurrency to validate transactions and add new blocks to the network. In return, stakers receive crypto rewards. Traditionally, physically backed crypto ETPs charge a management fee and specify a coin entitlement, which refers to the number of digital assets the ETP holds.
However, CoinShares has introduced a novel approach. Instead of applying a management fee, the firm will reduce the fee from 1.5% to zero and adjust the coin entitlement daily. This mechanism allows the ETP to accrue and distribute staking rewards to investors—specifically, an annualized reward of 5% for Polkadot and 3% for Tezos.
Key Features of the New ETPs
- Physically Backed: Both ETPs are fully backed by the underlying assets at all times, with custody handled by Komainu.
- Daily Accrual: Staking rewards are calculated and added daily, ensuring that the coin entitlement increases over time.
- Redemption Option: Investors can redeem their ETP shares directly for the native cryptocurrencies, DOT or Tez (XTZ).
- Zero Management Fee: By eliminating the management fee, CoinShares passes the full staking rewards to investors.
These products join CoinShares’ existing lineup of physical ETPs, which includes offerings for Bitcoin (BTC), Ether (ETH), Litecoin (LTC), and XRP. The entire physical ETP series, launched in January, currently has approximately $475 million in assets under management.
Market Context and Investor Interest
According to recent reports, digital asset investment products saw inflows of around $14 million last week, breaking a five-week streak of outflows. This suggests that investors are viewing current market conditions as a buying opportunity.
While institutional investors have primarily focused on Bitcoin and Ether products, retail and self-directed investors are showing growing interest in alternative cryptocurrencies. The introduction of staking rewards ETPs caters to this demand, providing a structured and secure way to gain exposure to assets like Polkadot and Tezos.
CoinShares has a history of innovation in the European market, having launched the first physically backed Bitcoin ETP in 2015. The firm aims to set a new standard with these staked ETPs, anticipating that they will become the preferred structure for tracking proof-of-stake digital assets.
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Frequently Asked Questions
What is a physically backed ETP?
A physically backed ETP holds the actual underlying asset, such as cryptocurrency, rather than derivatives or synthetic contracts. This ensures that the product is fully collateralized and can be redeemed for the asset itself.
How do staking rewards work in these ETPs?
The ETP stakes the held cryptocurrencies on the respective proof-of-stake blockchains. Rewards generated from staking are distributed to investors by adjusting the coin entitlement daily, effectively increasing their holdings over time.
Can I redeem the ETP for actual DOT or XTZ?
Yes, investors have the option to redeem their ETP shares directly for the native assets, Polkadot’s DOT or Tezos’ Tez (XTZ), at any time.
What are the risks associated with staking ETPs?
Risks include market volatility, regulatory changes, and blockchain-specific risks such as network slashing or validator failures. However, the physically backed structure and professional custody mitigate some of these concerns.
Why are there different reward rates for Polkadot and Tezos?
The staking reward rates—5% for Polkadot and 3% for Tezos—are based on the respective networks’ inflation rates and staking mechanics. These rates are subject to change based on network conditions.
How does this compare to staking directly?
Staking through an ETP offers convenience and eliminates the technical barriers of setting up and maintaining a staking node. However, it may involve lower rewards than direct staking due to operational costs, though CoinShares currently charges zero management fees.
Conclusion
CoinShares’ launch of staking rewards ETPs for Polkadot and Tezos represents a significant step forward in the integration of traditional financial products with blockchain-based rewards mechanisms. By offering daily accruals, zero fees, and physical redemption, these products provide a compelling option for investors seeking exposure to proof-of-stake assets without the complexities of direct staking.
As the digital asset market continues to evolve, structured products like these are likely to play an increasingly important role in bridging the gap between conventional finance and the crypto economy. 👉 Learn more about crypto ETPs