LUNA Crash Has ETP Issuers Sweating Their Exposure

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

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

But the price of algorithmic stablecoin UST has sunk far below its targeted $1 peg in recent days — the Terra blockchain’s native currency, LUNA, which the 21Shares Terra ETP tracks, has fallen alongside it, dropping nearly 97% in the 24 hours to 4:30 pm ET Thursday.

21Shares ETPs are designed to provide one-to-one exposure to the performance of their underlying assets. If the price of LUNA drops to zero, so too will the fund, a 21Shares spokesperson told Blockworks.

“As LUNA experiences low prices and high volatility, it is likely that exchange spreads will continue to widen, which may ultimately lead to delisting on the part of the exchanges,” the representative said. 

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

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

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

Valour CEO Tommy Fransson said the Terra plunge has spurred “a difficult time” for the industry, noting that ETPs investing in the asset are taking a hit.

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

Will Peck, head of digital assets at asset manager WisdomTree, noted that many financial advisors seek to obtain diversified crypto exposure for clients. The firm created the RWM WisdomTree Crypto Index in a way that minimizes the impact from volatility to any one cryptoasset, he added, such as LUNA. 

The index offers exposure to layer-1 networks, layer-2 protocols, oracle networks, crypto indexing services, decentralized finance (DeFi) and the metaverse. Terra had a 7.5% weighting in the index, according to a fact sheet published on April 22. LUNA had a weighting of 0.17% on Wednesday.

“The index methodology and index committee overseeing the index construction focus on a process that considers cryptoasset use cases and importance to the crypto ecosystem,” Peck said. “LUNA, along with broader crypto market events and other cryptoassets, are assessed in that context, which is an ongoing process.”

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