21Shares Seeks SEC Approval for Groundbreaking Leveraged Crypto ETF Based on Hyperliquid Index

21Shares, a leading global digital asset investment firm, has submitted an application to the U.S. Securities and Exchange Commission (SEC) for approval of a 2x leveraged exchange-traded fund (ETF) linked to the Hyperliquid Index. If granted, this ETF would represent a pioneering step in the U.S. market, becoming the first leveraged ETF to track a decentralized derivatives protocol.

Understanding the Structure of the 2x HYPE ETF

The SEC filing, dated October 16, reveals the proposed framework for the “2x HYPE ETF.” The ETF’s design aims to deliver twice the daily returns of the Hyperliquid Index through swaps rather than direct ownership of tokens. By using swaps to emulate performance, the fund avoids the custodial challenges often associated with holding digital assets, such as wallets and private keys. This swap-based model ensures compliance with the Investment Company Act of 1940 and enables daily rebalancing to sustain its targeted leverage.

This operational strategy not only minimizes digital token custody risks but also reflects an effort to align digital asset products with existing regulatory standards while maintaining efficient performance in a rapidly shifting market.

A Bold Innovation in the ETF Landscape

Analysts have hailed this move as a significant innovation in bridging decentralized financial protocols with established investment structures. While optimism is high, certain operational hurdles have been flagged, including swap funding costs and counterparty risks, which could complicate execution. Depending on liquidity dynamics within the Hyperliquid market, the fund’s projected asset size could range from $500 million to $1.5 billion, underscoring its scalable ambition.

By introducing this leveraged ETF product, 21Shares aims to push the boundaries of crypto-integrated investment opportunities, challenging the traditional norms of portfolio management and offering investors an advanced entry point to the burgeoning decentralized finance (DeFi) ecosystem.

European Triumph Sets the Stage

21Shares is no stranger to success in this domain. The company previously launched the HYPE exchange-traded product (ETP) on the SIX Swiss Exchange, which quickly gained traction among European institutional investors. The ETP removed logistical complexities, such as managing blockchain wallets or private keys, making it a more approachable option for institutions. This streamlined structure drove substantial demand and showcased the potential for institutional adoption of Hyperliquid-based assets.

The European launch reflects a growing appetite among professional investors for products that simplify access to advanced DeFi protocols while maintaining compliance with financial regulations. Lessons learned from this success likely inform the design of the newly proposed ETF, amplifying its chances of resonating with U.S. investors.

Intensifying Competition in Hyperliquid Assets

The race to develop innovative ETFs based on Hyperliquid protocols is becoming increasingly competitive. Rival firms such as Bitwise and VanEck are also actively pursuing products tied to the Hyperliquid Index. Bitwise recently filed for a spot-focused HYPE ETF that steers clear of cash settlements, offering a more straightforward digital asset integration. Meanwhile, VanEck is following a dual-market strategy, exploring spot ETFs with staking rewards and buyback features across both the U.S. and European markets.

These developments underline the intensifying interest in Hyperliquid-based ETFs as major players in the financial sector move to capture the benefits of decentralized protocols within traditional investment frameworks. Regulatory scrutiny remains a hurdle, but the ongoing evolution of these products could redefine the digital asset landscape while pulling DeFi into mainstream investment portfolios.

Conclusion: Shaping the Future of Digital Asset Investment

21Shares’ ambitious proposal to launch the 2x HYPE ETF represents a transformative moment in the fusion of decentralized derivatives protocols and traditional financial systems. By leveraging swaps, ensuring compliance, and mitigating digital custody complexities, the ETF could serve as a benchmark for innovation in crypto-integrated investments.

As competitors like Bitwise and VanEck also work to establish their presence in the Hyperliquid market, the broader growth of ETFs focused on DeFi mechanisms is poised to reshape digital asset investment strategies. With regulatory developments and market adoption milestones on the horizon, this emerging sector holds vast potential to redefine how institutional and individual investors engage with cryptocurrencies and blockchain-powered protocols.