SoFi launches first-of-its-kind web3 ETF
With all the buzz around web3 and the metaverse, it was only a question of time until the investment management community would pick up that theme and launch products. In fact, given how early we are in the development of these domains, and how many different opinions and definitions exist, one could reasonably expect these products to be primarily focused on the private markets at this point, such as a16z’s announcement of a USD 4.5bn web3 fund in May.
It therefore comes with a little surprise that SoFi, one of the US-based ur-FinTechs that also recently has obtained a banking license, believes that there is sufficient representation in public markets to launch an exchange-traded fund (ETF). According to the company, “The SoFi Web 3 ETF provides investors with access to the companies powering the next tech revolution and driving a decentralized approach to the internet, such as the metaverse and artificial intelligence. TWEB tracks the SoFi Solactive ARTIS® Web 3.0 Index, providing diversification by investing in 40 securities across four themes — NFTs & Tokenization, Blockchain Technology, Metaverse, Big Data & AI — solving the key problems with the internet today.” All of that for an expense ratio of 0.59% for a proprietary index tracker. We are curious to see the first publication of the fund’s top ten holdings.
It is educational to take a look at the short-form of the risk disclosures to gain an appreciation of the proposed investments (for a more comprehensive discussion, please check the prospectus):
- Big Data & AI Risks. Companies that develop or support the development of Big Data analytics systems and AI systems may have limited product lines, markets, financial resources or personnel. These companies typically face intense competition and potentially rapid product obsolescence. These companies are also heavily dependent on intellectual property rights and may be adversely affected by loss or impairment of those rights.
- Blockchain Technology Risk. Blockchain technology is a relatively new and untested technology which operates as a distributed ledger. The risk associated with the blockchain technology may not emerge until the technology is widely used. Blockchain systems could be vulnerable to fraud, particularly if a significant minority of participants colluded to defraud the rest.
- Metaverse Risk. Metaverse companies provide internet navigation services and reference guide information and publish, provide or present proprietary advertising and/or third party content. In addition, they often derive a large portion of their revenues from advertising, and a reduction in spending by or loss of advertisers could seriously harm their business.
- NFT & Tokenization Industry Risk. The NFT and tokenization industries are rapidly evolving and intensely competitive, and are subject to changing technologies, shifting user needs, and frequent introductions of new products and services. If the NFT marketplace fails to continue to grow, firms that support NFT marketplaces may lose money or go out of business.
There are additional risks of investing in newly launched products without a track record. Do your own research and/or consult with your investment advisor. This blog post does not constitute investment advice.
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