Aave ETF Race Heats Up as Grayscale Challenges Bitwise

Grayscale has filed with the US Securities and Exchange Commission to convert its Aave trust into a spot exchange traded fund, intensifying competition with Bitwise to launch the first US ETF offering direct exposure to AAVE.

Key Takeaways

• Grayscale filed a Form S 1 to convert its Aave trust into the Grayscale Aave Trust ETF and list it on NYSE Arca under the ticker GAVE.
• The proposed ETF would hold AAVE tokens directly, charge a 2.5% fee, and name Coinbase as custodian and prime broker.
• Bitwise has submitted a competing Aave linked ETF proposal, setting up a race for regulatory approval.
• Aave holds more than $27 billion in total value locked, even as its token trades over 80% below its 2021 peak.

What Happened?

Grayscale submitted a Form S-1 registration statement to the Securities and Exchange Commission seeking approval to convert its existing Aave trust into a spot ETF. The fund would be renamed the Grayscale Aave Trust ETF and listed on NYSE Arca under the ticker GAVE.

The filing places Grayscale in direct competition with Bitwise, which previously applied to launch its own Aave related ETF, as asset managers expand beyond Bitcoin and Ethereum products.

Grayscale Targets Direct AAVE Exposure

According to the filing, the proposed ETF would hold AAVE tokens directly, offering investors straightforward exposure to the decentralized finance protocol. Grayscale disclosed that the fund would charge a 2.5% management fee.

Coinbase is expected to serve as both custodian and prime broker for the product. The structure mirrors previous crypto trust to ETF conversions, a model that has gained traction as issuers seek to streamline regulatory approval and improve market access.

NYSE Arca, one of the most active exchanges for digital asset investment products, has been selected as the listing venue. If approved, the ETF would trade under the ticker GAVE.

The move signals that large asset managers still see opportunity in crypto linked products, even during periods of market weakness.

Bitwise Files Competing Proposal

Grayscale is not alone in targeting Aave. Bitwise filed with the Securities and Exchange Commission in December to launch the Bitwise AAVE Strategy ETF.

While Grayscale plans to hold AAVE tokens directly, Bitwise proposed a blended structure. Its ETF would invest up to 60% of assets in AAVE tokens and allocate at least 40% to securities that provide Aave exposure, including other ETFs.

The parallel filings underscore growing competition among crypto asset managers to broaden their ETF lineups beyond large cap tokens such as Bitcoin and Ethereum. Both firms aim to offer the first US listed product delivering direct exposure to Aave.

Aave Fundamentals Support ETF Interest

Aave remains the largest decentralized lending protocol, with more than $27 billion in total value locked, according to DefiLlama data. The protocol allows users to lend and borrow crypto assets across multiple blockchains, while the AAVE token plays a role in staking and governance.

Despite its strong on chain activity, the token has struggled in price performance. CoinGecko data shows AAVE trading near $126, down more than 80% from its all time high of nearly $662 reached in May 2021 during the previous altcoin bull cycle.

Still, global appetite for Aave linked investment products appears steady. In Europe, 21Shares launched an Aave exchange traded product on Nasdaq Stockholm in November, while Global X introduced a similar product in Germany in early 2023.

Regulatory Review Ahead

The Securities and Exchange Commission will now review Grayscale’s application, focusing on custody arrangements, liquidity, and disclosure standards. The timeline and outcome could shape expectations for future decentralized finance ETFs in the United States.

As more issuers test the boundaries of crypto investment products, Aave has become a focal point for the next wave of altcoin ETF proposals.

CoinLaw’s Takeaway

In my experience, when major firms like Grayscale and Bitwise compete over the same asset, it signals real institutional interest. Even though AAVE is still trading far below its peak, I found it notable that managers are willing to push forward with regulated products tied to decentralized finance.

To me, this is less about short term price action and more about long term positioning. If the Securities and Exchange Commission opens the door to Aave ETFs, it could pave the way for many more DeFi focused funds. That would mark an important shift in how traditional investors access crypto beyond Bitcoin and Ethereum.

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