10 min readThe thematic CoinShares - Compass Smart Contract Platform Index encapsulates the performance of some of the most important players in the Web3 (also known as Web 3.0) ecosystem: the smart contract platforms, who are the players building the tools necessary for the Web 3.0 revolution to succeed. The objective of the CoinShares Physical Smart Contract Platform ETP is to provide investors with exposure to this dynamic index.
The CoinShares Smart Contract Platform ETP (Ticker: CSSC) replicates the performance of the CoinShares-Compass Smart Contract Platform Index, which groups together the 10 largest cryptocurrencies related to the core infrastructure of the Web 3.0 revolution.
After providing a quick definition of the Web 3.0 theme, this article will focus on the CoinShares Physical Smart Contract Platform ETP, its structure and benefits.
A Thematic Index Focusing on Web3 Infrastructure
Thematic investing is an investment approach consisting of identifying global thematic trends which have the potential to lead to structural shifts in our society, and invest in assets which are expected to benefit from it.
Thematic investing has experienced a surge in popularity in recent years, especially across equities, with the emergence of new issuers specialising in thematic ETFs. The Financial Times estimates that thematic funds have tripled their share of the global investment market to 2.7% of all equity funds in the past decade, with assets under management worldwide exceeding $800bn.
An innovative thematic index
The goal of this ETP is to open up access to the Web3.0 revolution - without investing in Web3 applications directly. Instead, investments are directed towards the core infrastructure of Web3.0, which is a longer-term approach, potentially safer than investing directly in Web3.0 dApps.
The Web3 revolution is coming
Web 3.0 refers to the next evolution of the internet. Web 2.0 (the current version of the internet) is composed of strongly centralised platforms and services, under the control of a few corporations. In contrast, Web3’s infrastructure is decentralised, open-source, and powered by blockchain technology. It can host decentralised applications (dApps), decentralised finance (DeFi) platforms, and peer-to-peer networks without the need for intermediaries. Some major Web 3.0 applications are Brave Browser, OpenSea, UniSwap, Decentraland, Steemit.
This is all enabled by smart contracts: peer-to-peer networks that can run self-executing programs in a decentralised and permissionless manner. Without them, blockchain technology would be limited to basic peer-to-peer payment applications, and Web 3.0 would be impossible.
The CoinShares - Compass Smart Contract Platform Index
The index was developed by CoinShares in partnership with Compass Financial Technologies, a leading index provider. Based in Switzerland and France, and created in 2017, Compass is a pioneer in index developments over multiple asset classes, including commodities and digital assets. Its indexes are used by major financial institutions, such as Citi, MSCI, J.P.Morgan, Amundi, SocGen, or Euronext.
The CoinShares - Compass Smart Contract Platform Index follows the same methodology as the CoinShares-Compass Top 10 Crypto Market Index, but only includes coins of smart contract platforms .
Stringent coin selection
The coins must not be a stablecoin, a privacy coin, or a “meme” coin. The index doesn’t intend to be exposed to stablecoins, coins whose rules and protocols hide or obscure transactions on its blockchain, and coins regarded as a ”meme coin”.
Eligibility on exchanges. As CoinShares planned to list the ETP replicating the index on Xetra, Germany's main market, the index only integrates coins that can be traded on this exchange.
Trading and liquidity requirements. The coin must have a liquid trading market on at least one reputable digital asset exchange. The index committee analyses several metrics to assess liquidity, with no systematic threshold due to the dynamic nature of liquidity assessment. Should the assets in the index be illiquid, they would be harder to track and trade, negatively impacting the index’s ability to reflect the market efficiently.
BMR compliant. The BMR is the European Union’s Benchmarks Regulation, which gives a regulatory framework for indexes used in financial products. All coins included in the index are compliant with BMR. For example, while they meet the previous criteria, tokens such as BNB and FTT are considered by the Index Provider as too centralised to meet BMR’s eligibility criteria and thus have been excluded from the index.
Smart Contract Platforms: Only coins related to projects that are core to the Web3.0 revolution are included.
Market capitalization. The index aims to represent the coins with the largest market capitalization which also respect the above criteria.
Maximum weight per coin: 35%
The index allocates weight to each constituent according to its average market capitalization. But it also caps weight at 35% per coin - allocating the excess pro-rata to the rest of coins. This increases diversification and reduces concentration risk. Most other index ETPs do not follow such a rule, which can in turn increase risk.
Automatic quarterly rebalancing
The index is rebalanced quarterly, according to a predetermined schedule. This helps the index follow market evolutions while avoiding an increase in trading costs (compared to more frequent rebalancing).
Rebalancing happens automatically: the investor’s exposure is passive, and no further action is needed.
CoinShares Physical Smart Contract Platform ETP
CoinShares Physical Smart Contract Platform ETP provides exposure to the CoinShares - Compass Smart Contract Platform Index. It therefore also includes 10 constituents max, capped at 35% with automatic quarterly rebalancing.
For security & efficiency: a physical ETP
The ETP physically replicates the CoinShares-Compass index. This means it buys and holds the coins included in the index. Komainu, a specialised digital asset custodian regulated by the Jersey Financial Services Commission (JFSC), is in charge of holding the coins included in the index.
This structure offers institutional-grade security, while ensuring the ETP accurately reflects the value of the underlying assets (as opposed to a synthetic ETP using derivatives). For more information on Physical ETPs, head over to our dedicated article What are Physical ETPs.
Automatic Quarterly Rebalancing by a Third Party
To replicate the index operation, the ETP is rebalanced quarterly by CoinShares Capital Markets (Jersey) Ltd, who act as the Determination Agent of the Product.
Reduced management fees to 0%
CoinShares may stake some of the coins composing the index whenever applicable to generate revenues. This innovative architecture allows CoinShares to offer a product with 0% management fees - the only ETP of this kind in Europe.
Investor profile
As opposed to the CoinShares Physical Top 10 Crypto ETP, the CoinShares Physical Smart Contract Platform ETP follows a thematic approach. It is guided by the conviction that Web 3.0 is a major technological and financial turning point, whose mass adoption will require extensive infrastructure investment.
We believe this product will be of particular interest to investors who are bullish on Web 3.0 in general or at least one of its underlying thematics:
DeFi
Gaming
Collectibles and their marketplaces Metaverse
How to access the CoinShares Physical Smart Contract Crypto ETP
This ETP is available to buy through brokers. Our How to Buy section features a full list of brokers carrying CoinShares ETPs. If your usual broker is included, you can proceed to investing in the ETP following 4 simple steps:
Log in to your online broker’s account or app.
Search for the product name (CoinShares Physical Smart Contract Platform ETP), ISIN code (JE00BPRDNM93) or ticker (CSSC).
Choose the notional amount or number of securities you wish to buy
Place the execution order.
You can then easily monitor the ETPs’ performance in your portfolio.
Note that the ETP is listed on Xetra, Germany’s leading securities exchange.
A Single Product Capturing the Web 3.0 revolution
The CoinShares Physical Smart Contract Platform ETP is a thematic index ETP, focusing on Web3. It is composed of 10 coins max (capped at 35% per coin), and automatically rebalanced - an interesting option for investors wishing to be passively exposed to the coming Web3 revolution by participating in building its core infrastructure.
You can find more detailed information on the CoinShares Physical Smart Contract Platform ETP product page.