ETFs
Altcoin ETFs, Equity Companies and Tail Risk in the Crypto-Circular Economy
The big news in crypto this week is altcoin ETFs. But while the SEC play with his rules to adapt to such things, Europe has moved ahead.
here is a Press release:
Deutsche Börse welcomes Cardano Staking ETP by Liqwid (CASL), a disruptive crypto product
Frankfurt, May 21, 2024 – Liqwid Finance (“Liqwid”), an open source, algorithmic, non-custodial interest rate protocol designed for lenders, borrowers and developers, is collaborating with issue.swiss AG (the issuer of ETP) to introduce CASL, a revolutionary listed financial vehicle in the digital assets space. CASL not only tracks the performance of its underlying Cardano token ADA, recognized for its extensive peer-reviewed academic research, but also generates staking rewards. Admitted to the stock exchange as an Exchange Traded Product (ETP), the product is already available to investors on the Swiss stock exchange SIX and since May 22 on the regulated segment of Deutsche Börse XETRA (WKN A4AFBK, German ticker CSLE, ISIN code CH1327686056). .
That’s certainly a lot of words. Let’s take it piece by piece in reverse order of difficulty.
Deutsche Börse is a large exchange based in Frankfurt. It’s not the issuer of the press release, so “welcome” is a bit of a stretch.
AND P are pooled debt instruments that are traded on stock exchanges. An ETF is an ETP, but not all ETPs are ETFs. There are also ETPs that track the prices of debt securities and commodities, either by holding the underlying assets in custody or using derivatives to track their performance. Some financial regulators allow ETPs to track market prices of non-securities-related commodities, such as stand-alone entries into a computer database.
Cardano is a public blockchain built in 2015 by a team led by Charles Hoskinson, a co-founder of Ethereum who fell out with fellow co-founder Vitalik Buterin. Hoskinson wanted to convert Ethereum into a venture-backed company and Buterkin wanted to keep it non-profit. Cardiano is the tenth largest crypto token issuer, with a pixel-time market capitalization of $17.5 billion.
Adam This is what Cardano calls its native token. Cardano presents Ada as a more efficient means of exchange than Bitcoin and more secure than Ethereum but, as usual with crypto, it is rarely used to buy things. Instead, Ada is Cardano’s in-game currency. Rewards for maintaining the Cardano blockchain are paid in Ada and anyone running a project using the Cardano blockchain must pay transaction fees in Ada. Autonomous circularity is recognized in the name of its ledger audit mechanism: Ouroboros.
Ada is also a bet on Cardano adoption, which was most evident during the NFT bubble of late 2021. According to data from IO Global, NFT collections made up about half of the projects being built on the Cardano blockchain. This nonsense reduced Ada’s market capitalization to over $90 billion, from which it fell by 80 percent.
Cardano has raised external funds between 2015 and 2017 by issuing what it calls “Ada vouchers”. Sell Tokens to Investors makes Ada safe, says the SEC. Hoskinson of Cardano not agree at all.
Issuance.swiss SA says that he proposes to the transmitters “a turnkey solution» to create digital ETPs. It is not authorized by Finma or any other regulator. A branded banner on the website warns that all information there “IS DESIGNED FOR TECHNICAL SUPPORT FOR REGULATORY PURPOSES ONLY.”
According to the website, Issuance.swiss is a company wholly owned by a foundation called Stakeholder.swiss Stiftung. Swiss foundations are exempt from tax if their activities are of public interest. Stakeholder.switzerland describes himself as promoting “administrative framework conditions and governance rules in the Swiss financial center that have a positive impact on society and the environment, with a particular focus on the area of digital assets”.
A Swiss subsidiary of the Apex group founded Stakeholder.swiss.
Apex Group is a fund administrator headquartered in Bermuda. In April 2023, the SIX Swiss exchange approved a basic prospectus filed by Apex which gave Issuance.swiss permission to sell shares in crypto ETPs that would be administered by Apex.
Liquid financing is a token lending and borrowing protocol that runs on the Cardano blockchain. Users trade Ada tokens (plus a few others on the same chain) for Liqwid’s native token, known as qAda (etc). Each qAda token is created upon deposit and destroyed upon redemption, so it’s a bit like an algorithmic stablecoin for an unstablecoin whose price is not necessarily one for one.
Like Ethereum, Cardano is a proof-of-stake blockchain. Rewards for maintaining the ledger are distributed among the good operators, as defined by a consensus vote. Tokens are a cross between ballots and premium bonds. The more Ada is locked up by an operator, the more rewards he gets. The reward, paid in Ada, is a reduction in network transaction fees.
In other words:
Stake pools allow passive token holders to earn interest by delegating their holdings to a network manager. Almost all Cardano wallets allow depositors to stake their tokens. Staking is, by design, fundamental to the Cardano network, which critics say is more centralized than the alternatives.
Loans are what Liqwid offers through the built-in staking protocols. A user can deposit a token and use the collateral to borrow another token (in its qToken form). Liqwid creates a market between borrowing and lending interest rates. It also places depositors’ tokens in stake pools, although it indicates that it does not take custody of them, which is a neat trick discussed below.
The reasons why someone might want to borrow a token using another token are somewhat obscure.
Ada trades on all major crypto exchanges, so it is a way to turn crypto into fiat currency, but only in very specific circumstances. Just a handful of other Cardano tokens are active and moving tokens from other chains on Liqwid is it is very expensive.
Rather, it could be that lending is a way to short tokens, and some Ada holders prefer gaming to farming.
A third reason that comes up often Discussions on Reddit involves using borrowed tokens to purchase more tokens. For example, a person can deposit Ada tokens to borrow DJED, a kind of Cardano stablecoin, and use the borrowed DJED to purchase Ada. The person can then use the Ada they purchased with the borrowed DJED as collateral to borrow more DJED and purchase more Ada.
This is a simplification, as conversion is required to and from Liqwid’s native tokens, qAda and qDJED, but still. Buying Ada may increase its price, but DJED’s price is fixed, so it may seem like a perpetual motion. And we all know how it ends:
Non-depository probably doesn’t mean what you think. Cardano allows smart contracts that allow token holders to set immutable rules, for example granting another user certain rights over a token, such as the right to claim network maintenance fees attached to it. Smart contracts promise some sort of solution to the “not your keys, not your crypto” problem inherent in centralized exchanges, although how much custody the user actually retains will depend on the code of each contract.
Liqwid claims that users “have full control over their assets” and we found no reason to doubt this, although there is a thorny question here as to whether the assets mentioned are tokens or qTokens .
Non-custodial lending allowed Cardano to become a pioneer in initial stake pool offerings, or ISPOs. Projects use them to raise money in a way that might annoy regulators less than initial coin offerings.
ICOs were big in 2017, were mostly frauds or sweepstakes, and were mostly investment contracts. by Howey’s definition therefore, under US law, the titles were unregistered.
ISPO changes the model by allowing users to keep custody of their Ada tokens while distributing any interest they might earn. A project seeking liquidity sets up a staking pool to collect network maintenance fees on its backers’ tokens. In exchange, it gives backers who donate their harvest a new token linked to the project. As long as these new tokens are useful for the operation of the project, and not only represent a part of its future value, they must pass the Howey test. Maybe.
Supporting an ISPO offers another plausible reason why a user might want to borrow tokens with tokens.
The Cardano staking ETP has barely traded since it went live in March on the Swiss Stock Exchange SIXthe unofficial house of crypto ETP. It was the 161st crypto ETP to launch, and one of many that claim to offer investors returns without the need for a digital wallet.
Staking ETPs say they are token-backed, but because the ultimate owner of the tokens depends on the code by which they are staked, the exact meaning of “backed” is never clear. Tokens held by the ETP are sent into staking pools to earn network maintenance rewards. Rewards earned go back into the FTE, according to this illustration:
Good luck to SIX, Deutsche Börse and everyone else involved here, who will surely know what they are getting into. RIGHT?