Getting exposure to DeFi, DEX, DONs, Dapps and Smart Contracts
Lower Cost ETPs for Aave, Chainlink and Uniswap
Some Web3 or blockchain themed ETFs invest in equities of various technology and other companies that might only get a relatively small part of their revenues from Web3. A more direct approach could be to invest in the crypto tokens than are powering the development of an alphabet soup of acronyms. Homing in on one of them, DeFi (Decentralised Finance) has seen spectacular albeit very volatile growth, with Total Value Locked (TVL) growing from very little in 2020 to a peak of over $200 billion in 2022 before FTX collapsed. It recently recovered to $50 billion.
Aave, Chainlink and Uniswap networks and native tokens have their own unique features but can also be inter-related (for instance, Aave money markets uses Chainlink Network for data) and complementary as they all contribute towards the growing ecosystem of crypto infrastructure and finance.
Chainlink enables and expedites accurate and secure smart contracts by acting as a bridge and verification tool between blockchain and DONs (decentralized oracles) that sit outside the chain. It is widely used in DeFi, gaming and other industries.
Uniswap is a decentralized exchange (DEX) that uses the smart contracts to power transactions between ERC-20 tokens, which use the Ethereum Blockchain. Billions of dollars a day of DeFi transactions use Uniswap, which has an automated market maker guaranteeing liquidity and bypassing the need for a traditional middleman or intermediary.
Aave uses smart contract code to define interest rates, collateral levels and liquidation triggers, fees, distribution of funds, and other features for DeFi (decentralized finance) borrowing and lending involving over 30 tokens.
Global-X is undercutting competitors in the pricing of three new crypto ETPs which provide physical exposure to LINK (LI0X GY), UNI (UNIX GY) and AAVE (AVMX GY), which relate to the Chainlink, Uniswap and Aave networks.
All three have a management fee of 1%. This is less than the 21Shares Chainlink ETN, which has a Total Expense Ratio of 2.5% and the VanEck Chainlink ETN with a total expense ratio of 1.5%. It is also lower than the 1.9% charged by the first Uniswap ETF launched, Valour’s in 2021, or the 2.5% charged by 21Shares Aave.
Fees are one factor but investors may want to form their own views on how the different ETF providers handle custody and insurance issues. Global-X products hold physical crypto custodied with Coinbase Custody International, which is generally perceived to be one of the safer crypto exchanges. In addition, the literature says it is held in a “segregated digital wallet”, which should mitigate the risks of mixing it up with other parties’ holdings.
Various providers have different approaches to “cold storage” and crypto insurance, which investors may also want to research.
A management fee of 1% may still seem high for a passive product, but this should probably be compared with trading costs on crypto exchanges, which can levy quite high charges for retail investors converting relatively small amounts between fiat and cryptocurrencies.