Publish Date
January 7, 2025
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When you start exploring investments, two terms often pop up: ETF (Exchange-Traded Fund) and ETP (Exchange-Traded Product).
While they may sound similar, they are not the same. Let’s break it down in simple terms with clear examples, valuable insights, and actionable knowledge—with a focus on how these concepts apply in the fast-evolving world of crypto investments.
ETFs (Exchange-Traded Funds) function as investment funds where investors' money is pooled to purchase a basket of underlying assets, such as stocks, bonds, commodities, or cryptocurrencies. Each share of an ETF represents fractional ownership in the fund's holdings, offering investors exposure to a diverse range of assets. Typically, ETFs are designed to track the performance of an index—like the S&P 500 or NASDAQ Composite—or a specific asset class.
Example: The SPDR S&P 500 ETF (SPY) tracks the S&P 500 index, giving you exposure to the top 500 U.S. companies.
In the crypto space, ETFs are emerging as structured ways to gain exposure to digital assets.
Example: In January 2024, the U.S. Securities and Exchange Commission (SEC) approved several spot Bitcoin ETFs, allowing investors to gain direct exposure to Bitcoin through traditional financial markets. Among these, BlackRock's iShares Bitcoin Trust (IBIT) emerged as a significant player.
ETPs (Exchange-Traded Products) serve as a broader umbrella category under which ETFs, ETNs (Exchange-Traded Notes), and ETCs (Exchange-Traded Commodities) fall. While ETFs are strictly funds holding physical or index-tracked assets, ETPs can track stocks, commodities, indices, or financial instruments—and increasingly, digital assets like Bitcoin, Ethereum, and other tokens.
Example: The 21Shares Bitcoin ETP (ABTC) allows investors to trade Bitcoin exposure on traditional stock exchanges.
💡 All ETFs are ETPs, but not all ETPs are ETFs. Think of ETFs as a subset of the larger ETP family.
ETFs usually hold real assets like stocks or bonds and are managed manually, while ETPs (typically fully automated) cover a broader range, including more complex financial tools like synthetic assets (assets designed to mimic the value of real assets without directly holding them), debt instruments (loans or bonds that generate returns from interest payments), and derivatives (contracts that derive their value from other assets, like betting on the future price of Bitcoin).
Lets review the workings and core strengths of both ETFs and ETPs in 2025:
The creation of ETFs begins with Authorized Participants (APs), which are large financial institutions or banks responsible for facilitating the ETF structure.
These APs create ETF shares by delivering a predefined set of assets (e.g., Bitcoin in the case of a Bitcoin ETF) to the ETF issuer in exchange for ETF shares. Investors can then buy and sell these ETF shares on public stock exchanges, with prices fluctuating throughout the trading day, similar to regular stocks.
Example: During the ‘08 financial crises, APs (i.e., Merrill Lynch, J.P. Morgan, and Citigroup) facilitated the creation and redemption of ETF shares, ensuring that ETF prices stayed close to the actual value of the assets they represented. Their actions helped keep the market steady and gave investors confidence during a time of major financial chaos.
If demand for an ETF increases, APs can create more shares to meet market demand, and if demand decreases, shares can be redeemed.
One of the key strengths of ETFs lies in their regulation and transparency. These financial products are highly regulated and must disclose their holdings daily, ensuring clarity and trust for investors. Regulations often require ETF issuers to hold the actual assets they track, such as physical Bitcoin in a Bitcoin ETF, rather than relying on complex derivatives.
In the crypto space, ETFs primarily focus on providing regulated exposure to major assets like Bitcoin (BTC) or Ethereum (ETH). These ETFs either hold the actual cryptocurrency directly or invest in futures contracts tied to the asset's price. For example, a Bitcoin ETF allows investors to gain exposure to Bitcoin’s price movements without the need to manage wallets, private keys, or exchange security risks, but without generating additional yield returns.
At their core, ETPs are structured similarly to ETFs, relying on Authorized Participants (APs)—large financial institutions or market makers—to facilitate their creation and redemption. APs deposit a predefined set of assets or collateral with the issuer in exchange for ETP shares, which are then made available for trading on public exchanges.
For example, you could design a high-yield liquidity farming strategy or a diversified crypto portfolio and have it packaged as an ETP on stock exchanges through MC² Finance.
However, unlike ETFs, which often focus on holding physical assets, ETPs can also be synthetically replicated. This means that instead of holding the underlying asset directly, the ETP may use derivatives such as futures or options contracts to mirror the price performance of the target asset.
In the crypto world, ETPs can include physical assets (e.g., holding Bitcoin or Ethereum directly), token baskets (a mix of multiple cryptocurrencies like Solana, Polkadot, and Cardano), or derivatives-based structures (e.g., futures contracts betting on price movements).
Some crypto ETPs even offer leveraged exposure, where price gains (or losses) are magnified, or inverse exposure, which allows investors to profit from declining prices. This versatility makes ETPs attractive for short-term traders and institutional investors looking to execute advanced financial strategies.
The popularity of ETFs stems from their simplicity and accessibility. They provide an easy entry point for investors to gain exposure to complex or volatile markets without needing deep technical knowledge. ETFs are also particularly suitable for long-term, passive investment strategies, as they are designed to mirror the performance of the assets they track. In essence, when an investor buys shares of a Bitcoin ETF, they’re essentially purchasing exposure to Bitcoin's price movements without directly holding the cryptocurrency itself.
ETPs, on the other hand, combine the accessibility of exchange-traded instruments with the yield-generating potential of DeFi. Their flexible structure allows for sophisticated strategies like automated yield farming, liquid staking, and dynamic portfolio rebalancing - features not available in conventional ETFs. While their framework may be more complex, this complexity serves a purpose: enabling investors to capture additional value through staking rewards, liquidity provision, and other DeFi mechanisms. Modern ETPs incorporate professional risk management systems and detailed reporting to ensure investors can make informed decisions while accessing these enhanced return opportunities.
MC² Finance is pioneering the next generation of DeFi-powered ETPs for the European market in 2025. Our innovative platform enables the creation of sophisticated on-chain investment products that combine institutional-grade security with advanced DeFi yield strategies. By bridging traditional finance with decentralized protocols, we're developing ETPs that offer automated yield optimization, dynamic risk management, and transparent on-chain performance tracking.
If you are an institutional investor, stock exchange, or asset manager interested in launching or investing in DeFi-enhanced ETPs, we invite you to connect with our team. Our expertise spans both traditional financial markets and DeFi ecosystems, allowing us to create customized solutions that meet regulatory requirements while maximizing yield opportunities.
📧 Contact us at team@mc2.fi to explore partnership opportunities or request our detailed product documentation.
Yes, an Exchange-Traded Fund (ETF) is a type of Exchange-Traded Product (ETP). ETPs are a broad category of investment products traded on exchanges, including ETFs, ETNs (Exchange-Traded Notes), and ETCs (Exchange-Traded Commodities). ETFs are popular because they offer exposure to a diversified basket of assets, such as stocks, bonds, or commodities, in one investment.
Yes, ETFs and ETPs can be delisted from exchanges if they fail to meet regulatory requirements, suffer from extremely low trading volumes, or become financially unsustainable. While delisting doesn’t mean your investment loses all value, it can make buying or selling shares more challenging. Platforms like MC² Finance help keep track of market updates, ensuring you stay informed about such risks.
ETFs are generally better suited for beginners or those seeking diversification because they allow you to invest in a broad range of assets with a single purchase, reducing the risk associated with individual stocks. Stocks, on the other hand, require more hands-on research and carry higher risks but can offer higher potential returns if chosen wisely.
ETFs are often ideal for long-term investment strategies, as they are designed to provide steady exposure to markets, sectors, or asset classes over time. However, the optimal holding period depends on your financial objectives, risk tolerance, and the type of ETF.
Crypto ETPs can generate yield through advanced DeFi strategies, including:
These strategies allow investors to earn consistent yields while leveraging the volatility of crypto markets.
Yes, pension funds can invest in crypto ETPs if they comply with the fund's investment mandate and the regulatory framework of the respective region. With increasing institutional adoption of cryptocurrencies, many pension funds are beginning to explore crypto ETPs as part of their diversification strategies.
The minimum investment requirement for crypto ETPs varies depending on the provider and the platform through which they are accessed. Some platforms may have no minimum investment requirement, while others might set a threshold for entry.
Crypto ETP assets are stored on-chain, ensuring complete transparency and security. The amount of assets in a crypto ETP is always verifiable on the blockchain, allowing investors to track holdings in real-time and verify ownership without reliance on third-party reporting. Platforms like MC² Finance ensure that asset storage adheres to industry-leading security protocols, safeguarding investor funds from cyber threats.
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