XRPR's XRP ETF Structure May Lead to Net Asset Value Drift

The REX-Osprey's XRP ETF, XRPR, has an interesting structure that could potentially lead to its net asset value drifting from the price of XRP. On August 24, it was found that 40.25% of its assets were invested in the CoinShares Physical XRP ETP, which would add up fees and trading costs for XRPR investors.

This structure is not necessarily a problem for CoinShares' product, as it says its product is 100% physically backed by XRP. However, it could affect XRPR's performance due to the additional fees and trading costs involved in maintaining the required securities sleeve.

The estimated annual drag on XRPR from the underlying CoinShares ETP fee would be around 0.60375 percentage points before any changes in allocation, prices, or expenses. This means that XRPR investors may not see a direct one-to-one correlation between the fund's net asset value and the price of XRP.

The difference is more pronounced when considering the market frictions involved in trading and rebalancing the underlying securities. The extra security adds an issuer, custody, and trading-venue chain between XRPR and the XRP backing, which can lead to tracking differences beyond the stated fee.