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While crypto as a new asset class offers investors a chance to diversify their portfolios, investing in digital assets directly can be challenging, risky, and costly. The collapse of FTX drew more scrutiny over crypto exchanges’ regulatory oversight. It was reported that between $1 billion and $2 billion of customer funds vanished due to a "back door" bookkeeping system that allowed changes to financial records for FTX, which has now collapsed into bankruptcy.
That’s why more and more investors are turning to crypto exchange-traded products (ETPs) as a convenient and secure way to access this market. Crypto ETPs are regulated financial instruments that track the performance of one or more cryptocurrencies. They offer several benefits over direct investment, such as regulated exchange listings and transparency. In this blog post, we will explain how 21Shares ETPs protect clients.
A Robust Product Structure
Every 21Shares ETP is 100% physically backed by the underlying cryptoassets, which are held in cold storage. The assets are also fully segregated meaning each ETP has dedicated wallets containing only assets collateralizing the specific ETP. Assets are never commingled and are bankruptcy remote. Because assets are diversified across custodians and wallets, we minimize the risk of a single point of failure.
Active Oversight on Custody and Liquidity
The 21Shares team conducts ongoing due diligence and regular independent audits to ensure the custodied underlying cryptoassets of each ETP are secure, e.g. custodied assets can be verified at any time. Additionally, our institutional grade setup, with external market makers, enables 21Shares ETPs to benefit from deep liquidity. These product features allow 21Shares ETPs to maintain an edge over direct investing in the fragmented and nascent digital asset markets.
Institutional-Grade Custody for Security and Legal Protection
All underlying cryptoassets are held in cold storage of our institutional-grade custodian partners, and are segregated into different accounts. Since there is clear and established legal ownership of assets, the level of legal protection would be equivalent to traditional ETPs.
An additional layer of safety exists in the form of insurance that all custodians maintain over their business activities; independent audits and due diligence is performed on the custodians’ security measures.
The table below summarizes the various asset protection mechanisms that have been put in place and their corresponding client benefits:
In conclusion, 21Shares offers a range of crypto ETPs that are protected by a variety of different mechanisms. These mechanisms give investors confidence in diversifying their portfolios with digital assets knowing that 21Shares makes every effort to protect client assets. If you’re interested in learning more about our crypto ETPs.
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