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ETFs are one of the greatest innovations in modern finance. They have transformed investing for millions of ordinary people by making diversified investing liquid and accessible. They are products of off-chain financial infrastructure, optimized for the world in which they were conceived.
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Crypto ETFs are legacy wrappers for digital native assets. They strip ownership, block on-chain utilities, limit trading hours, and charge high fees while only offering price exposure. Direct ownership allows for personalization and compounding. On-chain portfolios enable customizable weights, tax optimization, yield strategies, governance participation, and 24/7 automatic rebalancing. The future is on-chain direct indexing rather than tokenized wrappers. Smart contracts replace intermediaries, maintain the utility of assets, and enable diversified investments without sacrificing control or flexibility.
And that’s the problem. ETFs are not built for the on-chain world. They were designed for markets that close daily, settlements that take several days, and systems that rely on intermediaries to perform creation and redemption. Add high fees and static configurations, and what once made sense begins to look increasingly outdated.
We are in a new era where assets have utility beyond mere governance and dividends, where transactions are programmable and executed by code rather than humans, and where wealth can grow on-chain. Why include next-generation assets in a last-century design? Rather than advancing the model, crypto ETFs retool on-chain assets into traditional financial structures.
I’ve given up more than I thought
When you buy an ETF, you own a wrapper around the assets, rather than the underlying assets themselves. The ETF issuer owns the actual assets and deprives you of the rights and benefits that come with ownership. The Big Three, BlackRock, Vanguard, and State Street, represent nearly 60% of the world’s ETFs with more than $11 trillion in assets and exercise enormous voting power on your behalf. Most ETF investors have no say in how the companies they invest in are governed.
This problem is even worse with cryptocurrencies. In cryptocurrencies, holding an asset directly often provides staking rewards, governance rights, airdrops, lending opportunities, and other token utilities from the asset. Crypto ETFs may track prices, but they do not pass through the on-chain benefits of direct ownership.
Additionally, even though the spot crypto market operates 24/7, crypto ETF investors cannot trade when the stock market is closed. This inequality leaves ETF investors offside during overnight volatility. Second, there are limitations regarding the inclusion of assets. Investors are provided with pre-packaged options with no room for customization. Not only do there not exist ETFs for most cryptocurrencies, but the ones that do may contain tokens that you don’t believe in or that you want to exclude.
Finally, the biggest downside for investors is fees, which have led to unprecedented profits for issuers like BlackRock. Grayscale Bitcoin ETF fees are 150 basis points. To put this into context, this is equivalent to 15 times the fees on SPY, the most popular ETF that tracks the S&P 500. For retail investors, this means continuing to pay ETF fees for limited exposure, even though they can buy and hold Bitcoin (BTC) directly on platforms like Coinbase with no storage costs.
Bridging the personalization gap
High-net-worth investors are avoiding ETFs as part of their core holdings. Instead, they replicate the index by purchasing the underlying stocks directly (a process known as direct indexing). This not only gives them the right to vote, but also allows them to do something more important: optimize their taxes. If you own the underlying assets, you can choose which assets to buy or sell and when. This control becomes important during tax season. Keep the winners, sell the losers, and use the losses to offset your profits. ETF investors, on the other hand, can only buy or sell the entire index.
But the real advancement is on-chain personalization. Portfolios can be built with customizable weights and exclusion lists, dynamic reallocation to new assets, instant rebalancing on dips, and you can decide when and how to sell individual assets rather than locking them into an ETF wrapper. For on-chain assets, this flexibility means choosing where to finance and earn yield at the asset level, which was not an option off-chain. Decimalization of on-chain assets means that anyone can directly create an index, regardless of whether they invest $1,000 or not.
The infrastructure already exists to do this better. High-throughput blockchains like Base and Solana (SOL) make this kind of continuous, automated management practical with near-zero fees. Smart contracts are the new middle man, automating portfolio management while maintaining ownership. They run continuously and execute strategies 24/7 without manual intervention. Unlike the clunky UX that defined early cryptocurrencies, new generation systems hide complex steps like abstracting gas fees, signing multiple transactions, and cross-chain bridging all under the hood.
Accessibility as a handicap
Crypto ETF evangelists say familiarity and regulatory clarity make crypto more accessible. It feels safer to purchase something through an existing brokerage account offered by a traditional financial institution. But accessibility doesn’t mean giving up the core benefits of your investment. Crypto investors don’t have to choose between a traditional interface and actual ownership. That’s what the next generation of crypto apps needs to offer. It has the same familiarity and security as a traditional brokerage account, which is coveted for long-term diversified investing. The ease of purchasing an ETF will be the same as purchasing a custom direct index ETF built on-chain. Investors do not have to give up control, transparency, or the ability to use their assets for governance or financing.
There have been some attempts at on-chain solutions, such as tokenized ETFs, but most simply replicate the wrapper model. The problem is that once tokenized, trading in an ETF is bound by the liquidity of the wrapper, not the liquidity of the underlying asset. For example, Bitcoin and Ethereum (ETH) have plenty of liquidity, but the tokenized 50/50 BTC and ETH index does not. These tokenized ETFs completely miss the point as they seek to provide outdated financial primitives to an audience that is deeply dependent on cryptocurrencies and recognizes the utility that comes from direct ownership. The wrapper model is incorrect.
A new destination for cryptocurrencies
From 2024 to 2025, the global ETF market is expected to grow from $11.5 trillion to more than $15 trillion, and is expected to reach $30 trillion by 2030. I see a different world. The world’s assets are moving on-chain and will finally be free from wrappers. In the future, all investors will be given direct ownership of assets without intermediaries, and all the new utilities that come with ownership. This is a world where portfolios are automated, run seamlessly cross-chain, and built for digitally native assets.
ETFs were great for their time and solved a real problem that existed in the 1990s, but we are no longer living in the past century. Rather than trying to adapt ETFs to cryptocurrencies, we need to build new tools for the future of finance. The infrastructure for this new reality already exists. All you need is the courage to use it.
