Opinion by: Agne Linge, WEFI Growth Director
Decentralized Finance (DEFI) disrupts and outperforms Tradfi has long been the dream of many innovators in the crypto space. Some of them praised over $40 billion in net inflows to discover Bitcoin (BTC) Exchange Trade Funds (ETFs) – Record Since January last year Regulatory drama – As the final victory of the industry.
While this suggests that more and more investors are interested in cryptocurrencies and regard them as legitimate assets, the turnaround of their core principles of self-compliance, permissionless access and boundary-free value transfer is a huge win for the industry. Encrypted-based ETFs simply focus on what is built to resist centralization.
Spot Encrypted ETF
Advocates of crypto-based ETFs have a compelling case of adopting these tools. Market-traded ETFs have opened the door for brand new investors, previously reluctant to invest their funds in crypto due to a lack of regulatory and technical barriers to understanding crypto infrastructure. Easy access and streamlining process are the main sales points for spot crypto ETFs, and familiar methods can be diversified into new assets through brokerage accounts rather than actual ownership. In addition, greater regulatory clarity increases visibility in the cryptocurrency industry and gives potential investors more confidence. For many, crypto ETFs represent a portal to digital assets and an encrypted version that is safer, simpler and more consistent with traditional financial specifications.
However, not all ETFs are the same, but the design of these funds varies by jurisdiction and shows how much actual “encryption” there is. Hong Kong operates a unique, physical ETF model that requires actual crypto support and allows customers to deliver or receive base coins in exchange for ETF stocks. It is very different from the cash-based model that requires handling the creation and redemption of ETF stocks at a price of USD.
This cash-based approach is abstracted from cryptocurrencies and adds a layer of fiat currency. This enhances the SEC’s ability to detect manipulation and fraud and protects the investor community through regulations originally designed for TradFI. It’s not just a technical thing: Wall Street funds are selling markets that are volatile and don’t care about underlying assets.
Exposure does not equal ownership
Spot ETF is an attempt to normalize cryptocurrencies and make them consistent with the Tradfi architecture. However, this attempt is a Procrustean bed for digital assets – arbitrary compliance with non-local standards inevitably introduces additional risks. Holders of ETFs face the risk of being a custodian, entrusting third parties to assets held directly. They also charge management fees, erode back over time, and are subject to tracking errors, because ETFs may perform differently from underlying assets due to higher transaction costs or system inefficiency. These problems are unique to Tradfi and Defi should solve them. Instead, ETFS trap crypto cargo is designed to escape. Investors gained exposure, but lost their empowerment. It’s like watching a lion call it wild in a bar.
Recent: Crypto ETFs don’t lose their “lustre” as adoption money grows
Most importantly, live ETFs are in violation of the basic principles of token learning of Defi and some coins. Major Tradfi players are rapidly accumulating BTC and Ether (eth)hold, Crowded Crypto Asset ManagerBlackRock ishares Bitcoin Trust has seen nearly $5 billion due to the outflow of other players. For Eth and Solana(sol), expected to obtain its own ETF approval, large centralized participants can create a high-profile focus in the verification proof confirmation mechanism, thereby cracking the ecosystem. The holding model of ETFs can be fatal to cryptocurrencies.
Unlike actual coins, ETF stocks have no convenient returns – ETF owners lack the ability to participate in governance voting, accumulating to earn earnings and earning income. The concentration caused by ETFs is essentially a delivery agency’s control over certain ecosystems, allowing them to decide their own conditions and impose decisions on the wider community.
Convenience at the cost of spirit
Spot ETFs fundamentally missed cryptocurrencies. The beauty of defi lies in self-observation: an individual should hold assets, control the keys and get rid of the middleman’s ideas. This is why and fundamentally the scale of innovation in the crypto industry today. ETFs sell exposure to BTC and ETH (and other Altcoins in the future), but simple price fluctuations do not limit the value of encryption. Defi promises a better financial system, but it will never be able to achieve this without agency and community participation.
Yes, ETFs are convenient. Yes, ETFs have more oversight. Yes, ETFs managed by well-known companies like BlackRock and Fidelity may give retail investors a sense of security and transparency. However, the cryptocurrency industry must forget the spirit of cryptocurrency and the core principles of the industry. Direct ownership protects the financial freedom of individual owners, frees up additional revenue streams, and maintains innovation and improvement through community engagement. In a system originally designed to eliminate the need for trust, returning to trusted intermediaries is not only ironic, it is a return.
Opinion by: Agne Linge, WEFI Growth Director.
This article is for general information purposes and is not intended to be considered legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent Cointelegraph’s views and opinions.
