Cboe BZX Exchange’s Proposal for a Spot Tron ETF
Cboe BZX Exchange is making strides in the cryptocurrency space by submitting a proposal to the Securities and Exchange Commission (SEC) to launch the first U.S.-based spot Tron ETF focusing on staking rewards. This significant development was filed on May 12 under Rule 14.11(e)(4), aiming for approval to list Commodity-Based Trust Shares that would provide fractional ownership in a trust containing TRX, the native token of the Tron blockchain.
Details of the ETF
The ETF, introduced by Canary Capital, plans to stake a notable portion, potentially the entirety, of its TRX assets via reputable providers, with the intention of using the staking rewards to boost the net asset value (NAV) of the fund. According to the fund’s S-1 registration document filed earlier on April 18, this setup allows investors to tap into the spot price of TRX while benefitting from the yield generated through the network’s delegated proof-of-stake mechanism. As of now, the yield for staking TRX stands around 4.6% APR, as reported by StakingRewards.
Operational Mechanics
Tracking will be facilitated through the CoinDesk TRX USD CCIX 60-minute New York Rate, which compiles notional TRX spot transactions from leading trading platforms and receives updates every 15 seconds. In terms of operational mechanics, shares of the ETF will be created or redeemed in blocks of 10,000 shares, exclusively for cash, with BitGo designated as the custodian of assets. Staking activities will happen at the trust level, ensuring that authorized participants do not have direct staking access or exposure to TRX assets.
Cboe’s Argument for Approval
Cboe makes a compelling case for the SEC to approve the ETF, noting that unlike the requirements seen in the 2018 Winklevoss disapproval order, this proposed fund does not necessitate a surveillance-sharing agreement with a regulated market of considerable scale. Instead, they reference recent approvals for spot Bitcoin and Ethereum products in which the SEC deemed alternative measures for manipulation detection sufficient despite the futures market size being small. Cboe believes the situation is similar for TRX due to its decentralized market framework, significant liquidity, continuous trading options available globally, and robust arbitrage activities.
Unique Characteristics of TRX
The proposal emphasizes the unique characteristics of TRX, including its continuous trading patterns, absence of centralized price controls, and lack of corporate disclosures, making it less vulnerable to market manipulation. Should an attempt be made to affect TRX prices on any single platform, arbitrage strategies could counteract effectively. Cboe argues that features such as the trust’s cold asset storage, the provision of an intraday indicative value every 15 seconds, and ongoing availability of NAV data bolster their assertions of sufficient investor protection.
Implications of Approval
If the SEC grants approval for this fund, it will represent the groundbreaking introduction of a U.S.-listed crypto ETF incorporating a native staking element. In contrast, previously approved Ethereum ETFs have sidestepped staking issues to navigate regulatory uncertainties. The acceptance of this proposal could pave the way for similar staking functionalities within exchange-traded products across other delegated proof-of-stake networks, such as Solana, Polkadot, and Cosmos.
Conclusion
While Cboe’s filing does not disclose a ticker symbol or specific staking service provider, it does confirm that all staking rewards would benefit the trust, which will not seek rights over forked or airdropped assets. This move comes amid increasing competition among ETF providers aiming to enhance crypto investment options beyond mere price exposure. Given the trend of management fees for Bitcoin and Ethereum ETFs decreasing towards zero, staking rewards could offer a compelling strategy for drawing investments, especially in the current low-interest climate. The SEC remains silent on the timeline for its decision regarding this proposed rule change.
