The Ethereum Merge is expected to be one the most significant events in cryptocurrency, potentially affecting many related businesses and services. Ethereum-based exchange traded products (ETPs), are no exception.
ETC Group, a major European ETP issuer has launched a new Ethereum investment product. The new ETP uses ETHW, a token that will run on proof of work (PoW), Ethereum after the hard fork.
In addition to ZETH, the ZETW ETP will be launched. ZETH was listed on Deutsche Boerse Xetra March 2021. ZETW will go live after the Ethereum hardfork, which is expected within 24 hours of the Merge.
The Merge is Ethereum’s transformation from the notorious mining-based PoW consensus mechanism, to an eco-friendly Proof-of-Stake (PoS), system.
Some Ethereum users will continue to use the PoW model. The Merge will likely fork Ethereum into two distinct blockchains. These include the PoS-based Ethereum blockchain known as ETHPOS, which is associated with the original Ether token (ETH). Another Ethereum network would rely upon the PoW system (referred to as ETHPOW and associated with the new ETHW coin).
Merge is scheduled to take place on September 15. It will have an impact on Ethereum-based ETPs. The underlying asset of default physical Ethereum ETPs won’t be based anymore on PoW. However, some ETH ETP investors may want to have exposure.
Bradley Duke, founder and co-CEO of ETC Group, stated that the ETP launch would allow ETC Group to provide investors with the most transparent and fair approach. Current ZETH holders will receive the ZETW token as an automatic addition to ZETH. This can be done on a 1:1 basis through brokerage accounts.
Duke stated that investors in his products should have the same chance as those who are direct holders of cryptos in the event there is a fork.
ETC Group views the Merge positively because it supports a greener PoS consensus system, according to the founder. The firm’s outlook is also very market-driven.
“If enough people support a fork, for whatever reason, we believe the free market will decide what should live and not.” […] It is not our business to predict whether or not the fork will succeed.
Duke claims that the Merge will mark the first time ETC Group has managed a hard fork in their crypto ETP offerings. ETC Group listed 14 crypto ETPs since June 2020 when they launched their first centrally cleared Bitcoin ETP.
Duke pointed out that launching a new ETP may not be the best way to distribute hardfork proceeds to investors. The firm could also sell ETHW tokens after the hardfork. He said that launching the ETP seemed to be a better option than selling ETHW tokens right away.
“The new ETP seems more appealing because we don’t know if ETHW will succeed. Duke stated that this is the fairest approach.
ETC Group has two separate Ethereum ETPs, but some issuers have decided to keep their ETPs on PoS Ethereum.
Related: Ethereum’s potential Fork ETHPOW has crashed 80% in the first year — Are you feeling more pain?
21.co, a cryptocurrency investment company, told Cointelegraph their 21Shares Ethereum ETP would reflect the PoS Fork of Ethereum which is “expectedly to be the dominant network version post-Merge.”
Eliezer Ndinga, director of research at 21.co, stated that if there was an airdrop and a hard fork, 21Shares would likely reinvest the proceeds in the products to align with index. He also stated that there could be “unknown or unforeseen factors”, including lockup periods and the possibility of custodians taking longer to process the newly forked asset.
Ndinga said that 21Shares would provide an update once any airdrops have been announced and the details are available.