Crypto ETFs centralize what was meant to be decentralized.
Decentralized finance (DeFi) aims to disrupt traditional finance (TradFi), but the rise of spot Bitcoin exchange-traded funds (ETFs) signals a shift towards centralization. Spot crypto ETFs attract investors by simplifying access to crypto assets, yet they compromise core DeFi principles like self-custody and permissionless access. Different ETF models exist globally; for instance, Hong Kong's in-kind model contrasts with the US cash-based approach, which introduces fiat currency layers and regulatory oversight. However, this can lead to risks such as custodian issues, management fees, and tracking errors. Spot ETFs dilute ownership rights, preventing participation in governance and staking. Major TradFi firms are accumulating significant crypto holdings, potentially threatening decentralized ecosystems. While ETFs offer convenience and perceived safety, they undermine the foundational ethos of crypto, which emphasizes individual control and community engagement. The reliance on intermediaries contradicts the original intent of DeFi, posing a risk to financial freedom and innovation.
