CoinShares staked Tezos and Polkadot ETPs share the staking rewards
Crypto ETP specialist CoinShares is launching challenger tezos and polkadot ETPs, that effectively offer zero management fees.
- CoinShares Physical Staked Tezos UCITS ETP (XTZS)
- CoinShares Physical Staked Polkadot UCITS ETP (CDOT)
Both are built the same way as other crypto ETPs. The cryptocurrencies – tezos and polkadot in this case – are held with a custodian. And the ETPs can be swapped by investment banks (APs) for the crypto at any time.
The funds charge a fee of 1.5%, which is in line with VanEck’s polkadot and tezos ETPs.
But what makes CoinShares products different and potentially cheaper is what they do with staking. CoinShares lends out the tezos and polkadot inside these ETPs to validators, which are the companies that maintain the blockchain. These validators then pay them rental fees. (Hence the ETPs have the word “Staked” in their names. Staking explained below).
CoinShares has announced that investors will earn a yield of 3% for XTZS and 5% for CDOT through staking rewards, net of fees and costs. In addition, the Issuer has agreed to reduce the 1.5% management fee to 0.
These staking rewards are not paid out as cash distributions like securities lending yields are. Rather they are built into the performance of the unit price, via the coin entitlement.
Bernie’s commentary – staking explained
Staking is kind of like the cryptocurrency equivalent of securities lending. It is where crypto ETP providers like CoinShares lend out their cryptos to validators. Validators are the companies that support and maintain blockchains. Validators then pay CoinShares rental fees, called “staking rewards”.
Why do validators borrow these cryptos? Because the proof of stake system – which is the backbone of many blockchains, allowing them to confirm changes and transactions – requires validators to prove that they hold a certain amount of the crypto. By proving that they have skin in the game, validators are thought to be more trustworthy. Why sabotage a system that you are invested in?, the thinking runs.
Validators are happy to pay rental fees to CoinShares because they get rewarded with freshly-minted crypto for their work maintaining the blockchain. This reward offsets the rental fees they pay.
Crucially, any staked tezos and polkadot coins do not leave CoinShares control. Rather they remain with the custodian, where they are held in CoinShares’ name.
The idea of a staked crypto ETP is not entirely new. 21Shares also shares staking rewards on its Solana ETP with investors. However CoinShares appears to be the first to do it with tezos and polkadot. And is the first to use it to commit to a zero management fee.