Introduction
The world of cryptocurrency investment continues to evolve with innovative financial products that bridge digital assets with traditional finance. In a landmark development, 21Shares AG has introduced the first-ever exchange-traded products (ETPs) tracking Stellar (XLM) and Cardano (ADA) on a regulated European exchange. This move represents a significant step forward in making these prominent blockchain assets accessible to institutional and retail investors through familiar, regulated investment vehicles.
These new offerings provide investors with secure, physically-backed exposure to two of the most established cryptocurrencies beyond Bitcoin and Ethereum, reflecting the growing diversification within the crypto asset class and increasing institutional demand for regulated crypto products.
Understanding Crypto ETPs
Crypto exchange-traded products (ETPs) are investment vehicles that track the price of one or more digital assets and trade on traditional stock exchanges. Unlike directly purchasing cryptocurrencies on an exchange, ETPs allow investors to gain exposure to crypto price movements through their conventional brokerage accounts, without the technical complexities of managing private keys or navigating crypto exchanges.
These products are particularly appealing to institutional investors who require regulated, secure, and familiar investment structures. Crypto ETPs typically employ physical backing, meaning the issuer holds the actual cryptocurrency to support the product's value, providing investors with direct asset exposure.
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The New Stellar (XLM) and Cardano (ADA) ETPs
21Shares has launched two groundbreaking single-asset ETPs: the Stellar XLM ETP (ticker: AXLM) and the Cardano ADA ETP (ticker: AADA). Both products began trading on the SIX Swiss Exchange on April 26, 2021, marking the first time these assets have been available in ETP form on a regulated exchange.
The AXLM and AADA ETPs are physically backed, meaning each unit of the ETP is secured by actual Stellar (XLM) and Cardano (ADA) tokens held in secure custody. Specifically, at launch, each AXLM unit was backed by approximately 40 XLM tokens, while each AADA unit was backed by approximately 16 ADA tokens. This 1:1 physical replication ensures that the ETPs accurately track the performance of their underlying assets.
The products carry an annual management fee of 2.5% and are available for trading not only on the SIX Swiss Exchange but also on the Stuttgart and Düsseldorf multilateral trading facilities (MTFs), providing multiple access points for European investors.
Why Stellar and Cardano?
Understanding Cardano (ADA)
Cardano is a third-generation blockchain platform founded in 2017 that enables developers to build decentralized applications and execute smart contracts. What sets Cardano apart from earlier blockchain platforms is its rigorous scientific philosophy and research-driven approach to development.
The platform utilizes Ouroboros, a proof-of-stake consensus algorithm that is more energy-efficient than the proof-of-work systems used by earlier blockchains like Bitcoin. Cardano was developed by Input Output Hong Kong (IOHK), a company founded in 2015 by Charles Hoskinson, who also co-founded Ethereum. This pedigree brings considerable expertise and credibility to the project, which aims to create a more sustainable and scalable blockchain ecosystem.
Understanding Stellar (XLM)
Stellar is a blockchain network specifically designed for asset transfer and cross-border payments between any currency pair. Founded in 2014 by Jed McCaleb (co-founder of Ripple), Stellar enables developers to build low-cost financial services products that can facilitate transactions between different currencies, both traditional and digital.
The native token of the Stellar network, Lumens (XLM), serves as a utility token for paying transaction fees on the platform. The network has processed substantial volume, with over 450 million transactions from more than four million users to date, demonstrating its practical utility and adoption.
Institutional Demand for Crypto ETPs
The launch of these new ETPs responds to significantly increased institutional interest in cryptocurrency assets. 21Shares reported a tripling of demand for its crypto ETP products in the first quarter of 2021 alone, based on aggregated inflows across its product range.
This growing demand is primarily driven by institutional investors seeking regulated, secure exposure to cryptocurrency assets without the operational complexities of direct ownership. The ETP structure provides these investors with the "institutional-grade" wrapper they require while maintaining direct exposure to the underlying crypto assets.
Hany Rashwan, CEO of 21Shares, noted: "As a leading crypto ETP issuer, we're being asked by institutional investors in Switzerland and Europe for simple and effective access to these new blockchain technologies. These new ETPs deliver what investors are asking for."
Investment Considerations for Crypto ETPs
When considering investment in crypto ETPs, several factors deserve attention:
Regulatory Framework: These products trade on regulated exchanges, offering investor protections not always available in direct crypto trading.
Custody Solutions: The underlying assets are held by professional custodians—Coinbase custodies XLM for the Stellar ETP, while Kingdom Trust custodies ADA for the Cardano ETP.
Accessibility: ETPs can be purchased through traditional brokerage accounts, making them accessible to investors who may not wish to navigate crypto exchanges.
Diversification: These products offer exposure to specific cryptocurrencies without the need to manage multiple wallets or private keys.
As with any investment, potential investors should consider their risk tolerance, investment horizon, and the inherent volatility of cryptocurrency assets before investing.
Frequently Asked Questions
What is a crypto ETP?
A crypto exchange-traded product (ETP) is an investment vehicle that tracks the price of one or more digital assets and trades on traditional stock exchanges. It allows investors to gain exposure to cryptocurrency price movements without directly holding the underlying assets.
How do the Stellar and Cardano ETPs work?
The 21Shares Stellar XLM ETP (AXLM) and Cardano ADA ETP (AADA) are physically backed, meaning the issuer holds the actual cryptocurrencies. Each unit of the ETP is backed by a specific quantity of XLM or ADA tokens, ensuring 1:1 tracking of the underlying asset's performance.
Where can I trade these ETPs?
These ETPs are available on the SIX Swiss Exchange as well as on the Stuttgart and Düsseldorf multilateral trading facilities (MTFs). They are denominated in USD and can be accessed through brokers that offer access to these European exchanges.
What are the costs associated with these ETPs?
Both ETPs carry an annual management fee of 2.5%, which covers operational costs including custody, administration, and exchange listing fees. This fee is deducted from the fund's assets and reflected in its net asset value.
Why invest through an ETP rather than directly purchasing cryptocurrencies?
ETPs offer several advantages including regulatory oversight, professional custody solutions, simplified tax reporting, and accessibility through traditional brokerage accounts. They eliminate the technical challenges of securing private keys and navigating cryptocurrency exchanges.
Are these products suitable for all investors?
Crypto ETPs may not be suitable for all investors due to the volatility and specific risks associated with cryptocurrency assets. Investors should carefully consider their risk tolerance and investment objectives and consult with a financial advisor if needed before investing.
Future Outlook
The introduction of Stellar and Cardano ETPs represents continued innovation in the digital asset space and reflects the maturation of cryptocurrency markets. As institutional adoption increases, the demand for regulated investment vehicles providing exposure to a diverse range of digital assets is likely to grow.
21Shares has indicated plans to expand its ETP offerings further in the second quarter of 2021, suggesting that investors may soon have access to even more cryptocurrency investment options through regulated channels.
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Conclusion
The launch of the world's first Stellar and Cardano ETPs by 21Shares marks a significant milestone in the integration of cryptocurrency assets into traditional finance. These products provide investors with regulated, secure access to two established blockchain platforms that offer distinct value propositions—Stellar for cross-border payments and asset transfer, and Cardano for smart contracts and decentralized applications.
As the cryptocurrency ecosystem continues to evolve and mature, the availability of diverse investment vehicles through regulated channels will likely play an important role in broadening institutional and retail participation in digital asset markets.