Today, 21Shares, one of the world’s largest providers of crypto exchange-traded products (“ETPs”),  launches its first DYDX token ETP, a vehicle to connect traditional investors to one of the decentralised finance (“DeFi”)’s most-established protocols. Through the 21Shares dYdX ETP (ticker: DYDX), dYdX reaches out to a new world of institutional investors that sit beyond the horizon for onchain projects.

As part of our role supporting the dYdX Treasury SubDAO, kpk — together with the dYdX Foundation and 21Shares — helped steward the listing to completion and support the 21Shares dYdX ETP’s operations. Where the SubDAO’s work has already delivered significant upgrades to the DYDX token through its Staking and Buyback Programmes, this listing is a natural extension of our mandate to cultivate the financial position of the dYdX Ecosystem.

This article explores what an ETP is, how it operates and how it will take dYdX beyond the boundaries of DeFi’s investment capital.

dYdX

Since its creation in 2017, dYdX has emerged as one of the leading decentralised derivatives exchanges. It consistently ranks among the largest crypto trading venues by volume, processing hundreds of millions  of dollars in transactions each day. What sets dYdX apart is its mix of its lightning-fast execution engine, deep liquidity, low fees, and institutional-grade infrastructure, which together help to win the trust of sophisticated traders.

dYdX exchange is also uniquely positioned among leading DeFi applications in its positioning on a dedicated blockchain hosted by its own infrastructure—the dYdX Chain. This gives the DYDX token, both central utility in the protocol and a source of value capture from fees paid to secure the network. Our previous piece on the dYdX Staking and Buyback Programmes explored how distribution and deployment of treasury assets is helping to stimulate value accrual in the DYDX token, making it an extremely exciting prospect.

However, at heart dYdX’s exchange remains a purely onchain application, frequented by professional crypto traders and experienced DeFi users. The ETP launch is a first step in connecting dYdX’s institutional-grade infrastructure with traditional institutional investors.

ETP

Exchange-traded products are a proven framework in traditional finance. They package exposure to an underlying asset in a regulated entity, listed with traditional exchanges, where shares can be bought and sold through existing bank or brokerage accounts. The 21Shares dYdX ETP extends this model to the DYDX token, making it available across European markets with the full weight of regulatory oversight.

This has two important consequences. First, accessibility: investors who lack the technical skill or risk tolerance to manage crypto asset custody can now access exposure to the DYDX token with ease. Second, credibility: regulatory standards for listed products provide a level of tried-and-tested assurance that novel crypto-native solutions can’t yet replicate. For compliance teams at traditional financial institutions, an ETP listing makes all the difference.

From today onwards, all brokerage accounts with access to Euronext-listed products will be able to add DYDX token exposure to their portfolio. That’s tens of millions of users and over 6,400 institutional investors spread across over 75 countries. Compared with ~$150 billion of existing DeFi TVL, Euronext listings collectively comprise ~$7 trillion of market capitalisation. 

The scale of exposure of ETPs is simply an order of magnitude greater than what DeFi currently offers.

Significance

Despite the inflating market capitalisation of crypto assets, there is clearly still a mismatch between most DeFi’s products and the appetites of ordinary investors. 

It’s for this reason that rallies in the price of BTC and ETH correlate with growing adoption of their latest-generation ETF products. Smaller capitalisation tokens like DYDX often have few means of attracting investment outside of existing crypto markets and knowledgeable investors. This leads to greater competition over the same funds, and a negative bias towards new projects jumping on current trends, rather than proven competitors.

The 21Shares dYdX ETP demonstrates how this misalignment is evolving: ETPs are one of many new passages emerging to connect a growing world of crypto investors with leading DeFi projects, regardless of their own level of proficiency. 

For projects with strong fundamentals like dYdX, access to traditional institutions is an opportunity to validate their model with rational investors who remain isolated from the rapid hustle of innovation and hype at the heart of DeFi. It allows the appeal of the token itself—with its exposure to native staking yield at its core and value accrual through token buybacks—to be put on display for those who care more about financial than technology.

At the same time, the launch must be seen as a step rather than a destination. A single ETP will not, by itself, integrate DeFi into the balance sheets of every major institution. Instead, the listing helps prove the concept: it proves that decentralised governance, tokenised revenue flows, and regulated market structures can coexist. In doing so, it builds confidence and momentum to help us move forward onto the horizon.

Beyond The Boundaries

In a time of high hopes but lower expectations for institutional adoption of DeFi, the launch of the 21Shares dYdX ETP is a promising step forward. By offering exposure to leading DeFi protocols to tens of millions of new investors, we create the opportunity to go beyond our own boundaries and grow the pie.

As time goes on, gradual innovations like the 21Shares dYdX ETP help stitch together the connective tissue of our traditional and decentralised financial systems. Ultimately, ETPs are an important addition to our arsenal in the pursuit of broader distribution and fundraising for leading DeFi projects.

Interested in learning how listed products can help you reach new markets? Reach out using our contact form on kpk.io.