3iQ Submits Prospectus For Solana ETP in Canada

3iQ, a veteran digital asset manager, has applied to launch a new exchange-traded product (ETP) in Canada.

On June 20, 3iQ announced it had submitted a prospectus to the Ontario Securities Commission (OSC) to create The Solana Fund, an ETP offering investors exposure to SOL. If approved, the product would trade on Canada’s Toronto Stock Exchange (TSX) under the ticker QSOL.

The fund notably seeks to offer exposure to staking yields generated by the underlying SOL backing the fund’s shares. 3iQ noted that assets will be held in cold storage through a partnership with Tetra and Coinbase.

“We have submitted a preliminary prospectus for The Solana Fund (QSOL) in Canada in relation to an initial public offering,” 3iQ said.

However, James Seyffart, a Bloomberg ETF analyst, noted that 3iQ’s proposed ETF comprises a closed-end fund. Closed-end funds issue a set number of shares traded on exchanges, and their prices can diverge from the net asset value.

“It will be more similar to one of the Grayscale trust products, except Canada's closed-end funds have mechanisms to prevent the discounts or premiums from getting too extreme,” he said. “3iQ did this with a Bitcoin fund in 2019 before launching ETFs.”

Eric Balchunas, a fellow ETF analyst at Bloomberg, criticized 3iQ for selecting a closed-end design for the fund.“Went from kind of a big deal to almost totally insignificant,” he said.

In April 2020, 3iQ was among the first to list a Bitcoin fund and launched a publicly listed Ether Fund in Toronto. They now offer two products, the 3iQ Bitcoin ETF (BTCQ) and the 3iQ Ether Staking ETF (ETHQ) on the TSX, with net assets of approximately $224 million and $48.84 million, respectively, according to 3iQ.

Is Solana a candidate for an ETF?

3iQ’s filing comes as investors are speculating as to which cryptocurrency may become the third to underpin a spot exchange-traded fund (ETF).

Unlike ETFs based on derivatives, spot funds hold the underlying asset they track, driving exerting bullish demand on the asset’s supply. Bitcoin became the first cryptocurrency backing a spot ETF in January, while spot Ethereum ETFsare expected to enter the market by fall.

While Solana has received praise from mainstream asset managers including Franklin Templeton and Standard Chartered, no U.S. firm has pursued plans for a spot Solana ETF to date.

However, asset issuers may be unlikely to apply for a spot Solana ETF any time soon after the U.S. Securities and Exchange Commission (SEC) described SOL as a security asset in its lawsuits against Coinbase and Kraken last year. As such, there are slim chances that the SEC would greenlight an ETF backed by an asset it believes to comprise an unregistered securities asset.

“SEC isn't dancing around SOL's status like they have ETH,” Seyffart tweeted. “Those lawsuits against COIN and Kraken and others flat out say ‘Solana is a security’.”

The SEC also noted the existence of regulated futures ETFs tracking Bitcoin and Ethereum when approving said funds, emphasizing that the futures ETFs' shares have demonstrated a strong correlation to the assets’ corresponding spot market prices.

In a June 16 interview, Arthur Hayes, the co-founder of BitMEX, suggested that Dogecoin may offer an unlikely contender in the spot ETF race.

“If you're thinking about TradFi getting into crypto, they're going to put an ETF on anything they can,” Hayes said. [DOGE has] a high market cap thing, it's been around for a while. It's the original memecoin… I think DOGE gets an ETF before the end of the cycle.

Adam Cochrane, a prominent web3 influencer affiliated with Synthetix, similarly speculated that both DOGE and Litecoin (LTC) could be well positioned for an ETF launch.

However, Seyffart argued that a Litecoin ETF would likely suffer from poor demand, despite LTC exhibiting comparable attributes to Bitcoin and Ethereum.