Goldman Sachs applies to create DeFi ETF

    01 Aug 2021

    Wall Street investment bank Goldman Sachs has filed on July 26 an application with the United States Securities & Exchange Commission (SEC) for new decentralized finance (DeFi) and blockchain-based exchange-traded fund (ETF).

    According to the filing, the proposed fund, called the “Goldman Sachs Innovate DeFi and Blockchain Equity ETF,” seeks to provide investment results that closely correspond to the performance of the Solactive DeFi and Blockchain Index from the German indices provider.

    Considering the proposed ETF would be linked to stocks of public crypto-related companies rather than crypto assets, it may have a slightly higher chance of getting approved by the SEC.

    The Goldman Sachs Defi and Blockchain Equity ETF would track the Solactive Decentralized Finance Blockchain Index, which offers exposure to companies aligned around two different themes: the implementation of blockchain technology and the digitalization of finance.

    Solactive AG uses a four-step rules-based methodology to determine the components of the Index. According to these rules, companies must have an average daily trading volume of at least $1 million and a total market capitalization of at least $500 million to be eligible. In addition, the stock must be listed on a regulated stock exchange and not restricted to residents of Mainland China in order to be eligible.

    Eligible companies are then screened using keywords and a proprietary natural language processing algorithm that scours public filings and data to identify companies with significant exposure to one or both themes.

    This filing is another piece of evidence that big banks are now interested in bringing their services and structures to the cryptocurrency market. While many of these disregarded cryptocurrencies in the beginning, they are now focused on integrating investment products that are designed to bring traditional investors to the crypto sphere.

    Goldman Sachs released a note on the state of the cryptocurrency market earlier this month when it stated that Ether could surpass Bitcoin as the most important crypto because the former has the “highest real use potential.” This view of the crypto ecosystem could have fueled the ETF application made by the investment bank, focused on following DeFi and blockchain-based companies.

    A recent survey made by the bank also concluded that high net worth families are turning to crypto, as an investment vehicle, due to several factors. These include “higher inflation, prolonged low rates, and other macroeconomic developments following a year of unprecedented global monetary and fiscal stimulus.” The survey points out there is a real audience expecting cryptocurrency investment products coming from regulated sources.

    While Goldman Sachs’ attempt at a DeFi ETF may be uneventful for the crypto audience, Grayscale is moving toward creating a DeFi fund, which would allow institutional investors to gain exposure to popular DeFi cryptocurrencies. Investors would be able to allocate capital toward DeFi through Grayscale without purchasing or holding the tokens directly.

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