Grayscale Seeks SEC Nod to Transform Aave Trust into ETF

Grayscale Pursues Conversion of Aave Trust to ETF on NYSE Arca

Prominent cryptocurrency asset manager Grayscale has submitted a formal application to the United States Securities and Exchange Commission (SEC) aiming to transform its existing trust that tracks the native token of the leading decentralized lending platform, Aave, into a fully operational exchange-traded fund (ETF). This strategic move underscores Grayscale’s confidence in the enduring demand for alternative cryptocurrency investments among institutional players.

In a detailed Form S-1 registration statement filed with the SEC on Friday, Grayscale outlined its comprehensive plans to restructure the trust. Upon regulatory approval, the product will be rebranded as the Grayscale Aave Trust ETF. The firm has specified intentions to list this innovative financial instrument on NYSE Arca, a premier venue renowned for hosting a vast array of exchange-traded funds and facilitating high-volume trading activities.

The proposed ETF will operate under the ticker symbol ‘GAVE,’ providing investors with a straightforward avenue to gain exposure to Aave’s token without the complexities associated with direct cryptocurrency custody. To support its operations, Grayscale will impose a management fee of 2.5 percent. Furthermore, the company has designated Coinbase, a trusted name in the crypto space, to fulfill dual roles as the custodian for the underlying assets and as the prime broker, ensuring secure and efficient handling of transactions and holdings.

This latest filing from Grayscale represents yet another milestone in the burgeoning field of cryptocurrency-focused exchange-traded products. It highlights a broader trend where major financial institutions continue to pursue regulatory clearance for ETFs linked to prominent altcoins, even as the broader digital asset market experiences periods of volatility and correction. Such developments signal sustained interest from Wall Street in diversifying crypto investment options beyond dominant assets like Bitcoin and Ethereum.

Aave stands as the preeminent protocol within the decentralized finance (DeFi) sector, boasting an impressive total value locked exceeding $27 billion, as reported by leading analytics platform DefiLlama. This substantial figure reflects the protocol’s robust adoption and utility. Users leverage Aave to engage in seamless lending and borrowing of various cryptocurrencies across a multitude of blockchain networks, enhancing liquidity and accessibility in the DeFi ecosystem. Additionally, holders of the AAVE governance token have the opportunity to stake their assets, thereby earning attractive yields while contributing to network security and decision-making processes.

Grayscale Enters Competitive Landscape Alongside Bitwise for Aave ETF

Grayscale’s initiative positions it as the second major player vying for United States regulatory approval to introduce an ETF directly tied to Aave’s token. The firm now shares the race exclusively with Bitwise, which pioneered this effort back in December by submitting its own application to the SEC for the Bitwise AAVE Strategy ETF. Bitwise’s ambitious filing spree at the time encompassed proposals for multiple ETFs linked to other high-profile altcoins, such as Uniswap’s UNI token and Zcash’s ZEC.

While both offerings aim to deliver exposure to Aave, their investment strategies diverge in key aspects. Bitwise’s ETF is designed to allocate up to 60 percent of its portfolio directly to AAVE tokens, with a minimum of 40 percent invested in related securities, including other ETFs or instruments that provide indirect Aave exposure. In contrast, Grayscale’s proposed ETF will maintain a direct holding of AAVE tokens, offering purer play on the token’s performance for investors seeking unadulterated access.

Should both products secure the necessary approvals, they would mark the inaugural instances of Aave-specific ETFs available to United States investors. This would expand the limited roster of similar products currently accessible overseas. For instance, in Europe, 21Shares introduced an Aave exchange-traded product on Nasdaq Stockholm back in November, catering to regional demand. This followed Global X’s earlier launch of a comparable Aave-linked product in Germany during the early months of 2023, demonstrating growing international appetite for such instruments.

Despite these positive developments, the AAVE token has encountered market headwinds recently. Over the past 24 hours, its price has dipped by approximately 1.6 percent, settling around $126. This represents a stark decline of more than 80 percent from its historical peak of nearly $662, which was achieved in May 2021 during an exuberant altcoin bull market phase. Data from CoinGecko underscores the token’s significant drawdown, yet ongoing ETF pursuits suggest optimism for future recovery and mainstream integration.

Grayscale’s proactive step in filing for the Aave Trust ETF conversion not only amplifies competition within the crypto ETF arena but also reinforces the maturation of DeFi tokens as viable assets for traditional investment vehicles. As regulatory clarity evolves, particularly following landmark approvals for Bitcoin and Ethereum ETFs, altcoin products like this could pave the way for broader institutional participation in decentralized protocols.