LUNA Crash makes ETP issuers sweat

  • The Nordic Growth Market has halted trading in Valor’s Terra ETP
  • LUNA’s Weighting in Crypto Indices Has Dropped With Price

Amid the price drops of TerraUSD (UST) and Terra (LUNA) in recent days, ETP issuers are looking to manage their exposures to the latter asset.

Launch of Swiss asset manager 21Shares the first Terra ETP in the world (exchange-traded product) in January on the SIX Swiss Exchange. CEO Hany Rashwan said in a statement at the time that the company was “very impressed” with [the Terra ecosystem’s] development and traction.

But the price of the UST algorithmic stablecoin has fallen well below its target of $1 in recent days – the Terra blockchain’s native currency LUNA, which the 21Shares Terra ETP tracks, fell alongside it, falling nearly 97% within 24 hours at 4:30 p.m. ET Thursday.

21Shares ETPs are designed to provide individual exposure to the performance of their underlying assets. If LUNA’s price falls to zero, the fund will also fall, a 21Shares spokesperson told Blockworks.

“As LUNA experiences low prices and high volatility, it is likely that currency spreads will continue to widen, which could ultimately lead to delisting from exchanges,” the rep said.

21Shares also offers indices such as its Crypto Basket 10 ETP, which seeks to track the investment results of an index made up of the 10 largest cryptoassets by market capitalization. According to a fact sheet published on April 4, Terra represented 3.68% of the index. Terra is now close to 0% weighting, according to the 21Shares website.

“Our indexed products are specifically intended to provide diversified exposure to a wide range of cryptos, recognizing that digital assets, like traditional assets, can sometimes experience significant volatility and that uncertainty is inherent in any investment,” said the representative. “We promise to monitor our products meticulously to ensure that they deliver the intended exposures and provide investors with well-diversified exposure to this emerging and sometimes volatile asset class.”

Valor, subsidiary of DeFi Technologies launched a Terra ETP on the Nordic Growth Market (NGM) in February.

Valor CEO Tommy Fransson said Terra’s plunge had caused “difficult times” for the industry, noting that ETPs investing in the asset were taking a hit.

“The rapid decline in the price of Terra has led to all trading being halted by the [NGM] exchange,” he said. “We will continue to monitor the situation closely. Our primary focus is and always will be on the investor and ensuring their autonomy to participate to the extent their risk appetite allows.

Will Peck, head of digital assets at asset manager WisdomTree, noted that many financial advisors are looking to gain diversified crypto exposure for clients. The company created the RWM WisdomTree Crypto Index in a way to minimize the impact of volatility on any crypto-asset, he added, such as LUNA.

The index provides exposure to Layer 1 Networks, Layer 2 Protocols, Oracle Networks, Crypto Indexing Services, Decentralized Finance (DeFi), and Metaverse. Terra had a 7.5% weighting in the index, according to a fact sheet published April 22. LUNA had a weighting of 0.17% on Wednesday.

“The index methodology and the index committee overseeing the construction of the index focus on a process that takes into account the use cases of crypto-assets and their importance to the crypto ecosystem,” said said Peck. “LUNA, as well as broader events in the crypto market and other crypto-assets, are assessed against this background, which is an ongoing process.”

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  • Ben Strack

    Ben Strack is a Denver-based journalist who covers macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and served as a reporter and editor for various local Long Island newspapers. He graduated from the University of Maryland with a degree in journalism. Contact Ben by email at [email protected]

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