Understanding the niche coins now in ETP format

By now, investors will have a relatively good understanding about the biggest cryptocurrencies in the market, however, the more niche coins such as cardano, litecoin and polkadot to name just a few are now also being wrapped into exchange-traded product (ETP) format.

With bitcoin, ethereum and others setting fresh all-time highs through the first half of 2021, many investors have started looking to the more dimly lit corners of the crypto universe, to the coins whose day in the sun is potentially yet to come.

Happy to service this demand, ETP issuers have taken to launching products targeting increasingly innovative, early-days – and frankly, niche – digital assets, to offer the reassurance of on-exchange trading to those looking to speculate on ‘the next big thing’.

Cardano ADA

The largest of the coins on our list is ADA, from the cardano platform, which has a market cap of $42.5bn.

The cardano infrastructure relies on Ouboros, currently considered the world’s largest proof-of-stake (PoS) protocol. The advantage of this framework is its much lower energy consumption versus the proof-of-work (PoW) protocols currently used by most cryptos. In fact, the Ethereum Foundation has announced it plans to shift its native currency onto PoS.

Cardano allows developers to construct decentralised applications and conduct peer-to-peer transactions via its native token, ADA.

Now the world’s fourth-largest crypto infrastructure, cardano has a settlement layer, similar to bitcoin, and a computation layer, similar to ethereum.

At present, the 21Shares Cardano ADA ETP (AADA) and the Valour Cardano SEK ETP offer investors access to the coin within an exchange-traded wrapper.

Ripple XRP

Starting life as opencoin before transforming into ripple, the platform has its own token, XRP, which is designed to allow financial institutions to transfer money with minimal wait times and fees.  

By 2018, over 100 banks were using ripple’s xcurrent messaging technology but avoided XRP due to concerns around volatility.  

Based on a common shared ledger, the platform relies on a network of independent servers that compare transaction records. Ripple can support a range of tokens representing fiat currencies, cryptocurrencies, commodities and other units of value such as frequent flier miles and mobile minutes.

A sticking point for the platform was the lawsuit brought against it by the Securities and Exchange Commission, with the regulator stating XRP had been illegally marketed to retail investors without making clear the risks involved in trading the asset.

This update saw 21Shares remove XRP from its mixed-basket HODL ETP but investors can still gain exposure via the 21Shares Ripple XRP ETP (AXRP) and the CoinShares Physical XRP (XRPL). At present, Ripple has a market cap of $31.8bn but in 2017, was briefly the world’s second-largest crypto.

Polkadot DOT

Moving down the list in terms of market cap, the $14.9bn polkadot platform was created by ethereum co-founder, Gavin Wood. 

Designed as a sharded heterogenous multi-chain architecture, polkadot allows external networks and customised layer one ‘parachains’ to communicate, creating a connected internet of blockchains.

Wood developed the polkadot protocol while mulling the sharding hurdles that might be faced in the ethereum 2.0 specification. By embedding sharding, the platform breaks the blockchain network down into separate entities to reduce latency – allowing it to scale and process more transactions per second.

Currently, exchange-traded exposure to the protocol is offered by two products from Swiss issuers, the 21Shares Polkadot ETP (ADOT) and the Valour Polkadot SEK ETP.

Litecoin LTC

Beginning as an early bitcoin spin-off in 2011, litecoin is a peer-to-peer digital asset released via an open-source client on GitHub, with a market cap of $9.7bn. 

Though bearing many similarities to bitcoin in its technical makeup, litecoin differentiates from the mega -ap coin in its lower block generation time (two-and-a-half minutes versus ten minutes), a higher maximum number of coins, and different hashing algorithms and user interface. 

The coin also uses scrypt in its PoW algorithm, which is a sequential memory-hard function that requires more memory than non-memory-hard equivalents. As a consequence, the devices used for Litecoin mining are more complex and expensive than those used for bitcoin prospecting.

The CoinShares Physical Litecoin (LITE) and ETC Group Litecoin ETC (ELTC) currently track the performance of the asset.

Solana SOL

With only a marginally smaller market cap of $9.1bn, solana is a third-generation PoS blockchain that creates a trustless system for determining transaction time called Proof of History (PoH).

Versus a PoW protocol, a PoH orders transactions in a series of hashes, allowing validators to process and transmit less information in each block, in turn reducing the time it takes to confirm a new block. 

Solana also uses other capabilities – Tower BFT, Turbine, Gulf Stream, Sealevel, Pipelining, Cloudbreak, Archivers – to create a network with a 400 millisecond block time, versus 10 minutes per block for bitcoin and 15 seconds per block for ethereum.

Earlier this week, the first ETP targeting solana, the Solana (SOL) ETP (ASOL), was launched by 21Shares.

Stellar XLM

Finally, we have stellar, an open-source, decentralised protocol for digital currency to fiat currency transfers with a market cap of $6.3bn.

Founded by ripple co-founder, Jed McCaleb, the platform uses the SCP protocol created by Stanford professor David Mazières.

Since 2014, stellar and its native token XLM/lumens have been backed by $3m in seed funding from Stripe. The platform was then integrated into South African messaging platform, Vumi, and Nigerian microfinance facilitator, Oradian, in 2015.

A year later, the crypto integrated with Deloitte to create cross-border payments application, Deloitte Digital Bank. And since, stellar has partnered with the ICICI Bank in India, African mobile payments firm Flutterwave, French remittances company Tempo Money Transfer, IBM and the Ministry of Digital Transformation of Ukraine.

At present, investors can gain exposure to the digital asset via the 21Shares Stellar ETP (AXLM).