The Crypto trading product that generates “baking” rewards has been listed on Switzerland’s main stock exchange SIX
Last November, I wrote about the first global multi-crypto ETP launched by the Swiss Fintech startup Amun AG. Backed by the relative success of the initial endeavor, the company unveiled other ETP products based on cryptos like Bitcoin, Ethereum, Ripple, Binance coin & the most recent addition of Tezos. Driven by consumer demand and the investors’ faith in the new digital asset class, we are seeing more of these trading products emerge, which are not from the top cadre of cryptos.
A good example of this is the recent launch of the Monero Futures Trading by a low-volume, Dubai-based spot/futures exchange called BTSE. While Monero has the distinction of being one of the top privacy-based coins, Tezos is only 17th by market cap. Having said that, it does entail some interesting features which made it the preferred choice for this ETP.
What is an ETP?
But first, let’s take a quick refresher in ETP — Exchange-Traded Product. Why it is becoming popular is its close resemblance to an ETF (Exchange-Traded Fund). Both of them are traded on stock exchanges like common shares, where the price is determined by the performance of the underlying asset or index. However, ETFs have minimum diversification requirements & the fund is only allowed to be invested in certain categories of the underlying asset.
“Tezos is quietly becoming a viable option for the issuance of tokenized securities. There’s growing confidence among security token issuers that Tezos can provide the tools and security necessary to facilitate similar efforts.”
~ Messari research analyst Wilson Withiam
Why Tezos?
Tezos is a Proof of Stake (PoS) blockchain with a native cryptocurrency Tez (XTZ) which started off in 2014. The project was intended to address the issues of smart contract safety, open participation & upgradeability. Tezos introduced two new features — a formal governance process & inflation funding.
Unlike other blockchains, where developers, miners & stakeholders argue on the changes to be incorporated, causing community splits, network forks & choking innovation, Tezos addresses this problem with the use of these two features.
The governance process allows for the participation of every Tezos stakeholder, while inflation funding incentivizes developers who come up with innovative solutions for improving the network. If developers’ proposals are approved via the governance process, the protocol automatically gets upgraded openly & methodically.
Passive Income via “Baking”
The Tezos-based ETP is the ninth one to be listed on the SIX exchange (table above). The ETP started trading under the symbol XTYZ on Nov. 5th. The underlying asset of the ETP will be held by Coinbase Custody. The investment objective of the trading product twofold — to provide exposure to the performance of the underlying Tez cryptocurrency & generating passive income through baking rewards. Amun will charge a fee of 2.5% of the proceeds just like all the other ETPs.
Tezos baking is somewhat similar to bitcoin mining. Unlike bitcoin mining though, Tezos baking does not require expensive hardware or electricity. All it needs is the native cryptocurrency. Baking on Tezos uses a unique consensus mechanism dubbed as Liquid proof of stake, which rewards network participants based on how many tokens they are baking. The rewards earned from baking will be automatically reinvested in the ETP increasing the size of your underlying shares.
While Ethereum & Cardano are set to move to the PoS consensus mechanism sometimes next year, Tezo's smooth functioning of the protocol gives it a unique edge in providing an additional investment opportunity… at least for now.
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