The Ethereum Merge is set to be one of the biggest events in the cryptocurrency industry, potentially affecting many related firms and services, and Ethereum-based exchange-traded products (ETPs) are no exception.
ETC Group, a major European crypto ETP issuer, has decided to expand its current Ethereum ETP offering by launching one more Ethereum investment product. The new ETP is based on ETHW, a new token that is set to run on proof-of-work (PoW) Ethereum following the hard fork.
The new ZETW ETP will launch in addition to the currently offered Physical Ethereum ETP (ZETH), which was listed on Deutsche Boerse Xetra in March 2021. ZETW is scheduled to go live shortly after the Ethereum hard fork occurs, which is expected to occur within 24 hours following the Merge.
The Merge refers to Ethereum’s transition from the infamous mining-based PoW consensus mechanism to an eco-friendly proof-of-stake (PoS) system.
As some Ethereum users are willing to keep using the PoW model, the Merge is likely to fork Ethereum into two separate blockchains. Those include the main PoS-based Ethereum blockchain, commonly referred to as ETHPOS and associated with the original Ether (ETH) token. Another Ethereum network would rely on the PoW system, referred to as ETHPOW, with the new ETHW token.
Scheduled to occur on Sept. 15, the Merge poses an impact on Ethereum-based ETPs: The underlying asset in default physical Ethereum ETPs will no longer be based on PoW, but some ETH ETP investors might want to have exposure to such an asset.
According to ETC Group co-CEO and founder Bradley Duke, the new ETP launch would allow the firm to ensure the most transparent and fair approach to investors. With the new ETP, current ZETH holders will get the ZETW token automatically as an addition to ZETH on a 1:1 unit basis on brokerage accounts.
“We just want to ensure investors in our products have the same opportunity as direct holders of any given crypto in the event of a fork,” Duke said.
ETC Group sees the Merge as a positive development as it supports a greener PoS consensus mechanism, the founder noted, adding that the firm is very market-driven in its outlook:
“If enough people get behind a fork for whatever reason, we feel the free market will decide on what should live and what should not. [...] We are not in the business of predicting whether the fork will be a success or not.”
According to Duke, the upcoming Merge will be the first time for ETC Group to manage a hard fork as part of its crypto ETP offering. Since launching it first centrally cleared Bitcoin ETP in June 2020, ETC Group has listed a total of 14 crypto ETPs on Xetra.
Duke noted that launching a new ETP is not the only option to distribute hard fork proceeds for investors, as the firm could also just sell ETHW tokens following the hard fork. However, launching the new ETP appeared to be a better option for ETC Group because some investors might not want to sell it right away, he said.
“The new ETP seems better because we just don't know what will happen whether ETHW will succeed or not. We feel this approach is the fairest,” Duke stated.
While ETC Group is moving forward with two separate Ethereum ETPs due to the Merge, some issuers decided to simply keep their ETPs running on PoS Ethereum.
Cryptocurrency investment firm 21.co told Cointelegraph that its flagship 21Shares Ethereum ETP will reflect the PoS fork of Ethereum, which is “expected to be the dominant version of the network post-Merge.”
“If a hard fork were to result in an airdrop, 21Shares would likely sell and reinvest the proceeds into the respective products to align with the index,” 21.co director of research Eliézer Ndinga said. The exec added that there may be “unknown and unforeseen factors,” including lockup periods, and it may take time for custodians to fully process the newly forked asset, among other issues.
“Once any airdrops are announced, and the specifics are available, 21Shares will provide an update,” Ndinga added.
Another major crypto ETP issuer, CoinShares, announced Wednesday that it would share the ETHW with its current CoinShares Physical Ethereum holders. The firm emphasized that both ETHW and ETH may experience significant price volatility during the Merge.