While Bitcoin and Ethereum-based exchange-traded funds (ETFs) are popular, the regulatory approval of a Solana ETF would provide an additional investment opportunity. This guide offers an in-depth view of Solana (SOL) ETFs, including their benefits, risks, and when they will be available in the US market like other ETFs.
What is Solana ETF All About?
A SOL ETF is an investment instrument that tracks the price movement of SOL. This ETF enables investors to gain exposure to Solana without necessarily purchasing, managing, or storing the cryptocurrency.
Investors can purchase SOL ETFs like stocks from conventional stock exchanges. They are less risky than purchasing Solana from an exchange and are a more comfortable investment for those familiar with the stock market.
How Solana ETFs Work
Solana ETFs’ operations are similar to those of other crypto ETFs in the market. However, the difference is that the change in SOL’s price is calculated to allow investors to purchase and sell its shares.
These ETFs are available through regular stock exchange brokerage accounts, so there is no need to bother with private keys or crypto wallets. A significant characteristic of Solana ETFs is their issuance and redemption method:
Creation Process
- It begins with the purchase of Solana by the Authorized Participant (AP).
- The APs forward the Solana to the ETF custodian, a third-party company that holds the ETF assets and guarantees their secure storage.
Finally, after the above steps are completed, the ETF share certificates are issued, which allows the public to buy or sell the shares on the stock market.
Redemption Process
- Selling the ETF share certificates allows the APs to cash out.
- The ETF provider redeems the ETF share certificates and returns the coins, also known as the ETF equivalent assets, to the authorized participants.
Types of Solana ETFs
Two categories of Solana ETFs exist.
Spot SOL ETFs
This type of ETF holds real Solana coins in its account. Hence, the price of the ETF corresponds to SOL’s price changes in real time. It has the most direct correlation to the Solana price.
Futures SOL ETFs
Rather than purchase and hold the currency, these ETFs trade Solana futures contracts. This type of ETF is more likely to be approved by regulators than others, as it presents less risk and uncertainty regarding asset prices.
Prominent Solana ETF Issuers
Several firms are preparing or already offering Solana ETFs.
3iQ Digital Asset Management (Canada): Offers QSOL, North America’s most well-known Solana ETF.
VanEck (Germany): Offers a Solana ETN tradeable on the Deutsche Börse.
WisdomTree (Europe): Issues a Solana ETN that can be purchased from multiple European stock markets.
In addition, firms like Grayscale, Bitwise, VanEck, 21 Shares, and Canary Capital have applied to the SEC for US-based SOL ETFs. With Donald Trump’s emergence as president, the anticipated pro-crypto political scene might hasten the process.
What Makes a Solana ETF Investment Attractive?
Investing in a Solana ETF has more benefits than purchasing the cryptocurrency directly.
- Regulated Access. You can purchase SOL ETFs through reputable stock exchanges, which provide greater safety and supervision than non-regulated crypto exchanges.
- Effortless Investment. Investors are not required to create a crypto-digital wallet or need to maintain private keys. Buying and selling Solana ETFs can be done through standard brokerage accounts.
- Liquidity. ETF holders can sell with ease during market hours.
- Staking Reward Potential. Some SOL ETFs permit staking, which allows such holders to earn passive income.
Risks Associated with Solana ETFs
Similarly to other forms of investment, Solana ETFs are subject to risks.
- Regulatory Uncertainties. The Solana ETFs are still undergoing scrutiny from regulators such as the SEC. Recent Polymarket polls put SOL ETF approval at 73%.
- Market Volatility. The Solana price is susceptible to the crypto market’s drastic fluctuations, which can affect the price of the ETF and result in losses.
- Technological Risk. Solana has a history of technological problems, such as network failure. This can reduce investor confidence in its ETFs.
- Custody and Security Risk. ETFs depend on custodians to keep their SOL tokens safe. A breach in security or a hack can be detrimental to such Solana funds.
What’s Next for Solana ETFs?
Solana ETFs are still in their infancy. Some Canadian and European ETFs are available, but the US SEC has yet to approve one for the American market. The first spot SOL ETF was approved in Brazil in August 2024, marking a significant milestone.
Final Thoughts
SOL ETFs, similar to Bitcoin and Ethereum ETFs, have the potential to become popular investments. However, anyone intending to invest should perform their detailed research before investing.
