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New ETF gives investors exposure to NFTs, crypto sector

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Defiance ETFs Co-Founder and CIO Sylvia Jablonski discusses her fund's goal to expose investors to NFTs, cryptocurrency trading, and blockchains.

Video transcript

AKIKO FUJITA: Tales of non-fungible tokens, or NFTs, are expected to surge to more than $17 billion this year alone, at least according to Cointelegraph Research. A new fund is looking to take advantage of that craze with the launch of the first NFT-themed ETF trading under the ticker symbol, NFTZ. Let's bring in Sylvia Jablonski. She's Defiance ETFs co-founder and CIO. Sylvia, it's good to talk to you today. Talk to me about the structure of this new ETF because it offers exposure. That's kind of the key word. It's about companies who are in this space, not necessarily the NFTs.

SYLVIA JABLONSKI: Yeah, good morning. Thanks for having me. Super excited about this one. So you're absolutely right. So, there are sort of two ways to buy NFTs. One is to buy them directly in a digital marketplace. And the second one that now exists is our ETF. And the way that you get exposure to NFTs through our ETF is that we essentially have an index methodology that selects securities that are involved in the issuance, the creation, and the commercialization of NFTs. So companies that are basically investing in the NFT space in a huge way and are representative of the growth of NFTs and will sort of benefit from that growth over time.

ZACK GUZMAN: Yeah, I mean, I'm curious how you kind of landed on these because it's tricky, right? NFTs are so new, you know? So it's like, you can put a Playboy in here, which is one of the top holdings, because they've issued their own NFTs. But you think about some of, I guess, the infrastructure there or some of the big players like an OpenSea, obviously not a public company. So I mean, how did you kind of weigh some of these that got included? Because it looks like there's a heavy emphasis, too, on mining companies, Bitcoin mining companies, that don't necessarily seem directly linked to NFTs.

SYLVIA JABLONSKI: Yeah, so great question. So this is actually the Defiance Digital Revolution ETF, and there are different components to the NFT marketplace. NFT is one of the core holdings and sort of the core exposures of this fund. So to answer your question, we look at companies like, as you said, Playboy because they have generated a good amount of revenue from these iconic NFTs that they had a couple of weeks ago. You've got companies like Atari in there that are huge in NFTs, whether it's for the old school gaming console or it's for some of their games. And also, they're a big landowner in the Metaverse and might have NFT relevance in terms of land ownership kind of popping up in the blockchain there.

You've got Funko. They've made their world famous figurines into NFTs. Mattel is selling NFTs of some of their big cars. So these companies are-- you know, we tried to think about purity. We want investors to have access to companies that are really investing in the NFT space, really creating and commercializing these products. You know, and I think you're going to be hard to press-- hard pressed to find some of these names and other ETFs out there.

To address the other question about why do you see some blockchain names in there and things like that, well, you know, all of-- there's a huge relevance to NFTs. The trading, exchanging of NFT happens on Ethereum. Blockchain technology drives the NFT participation, trading, and selling. So all of that is relevant. In order to buy NFTs, essentially, you're hooking up your digital wallet to one of these platforms that you mentioned, OpenSea and Wareable. And you're exchanging cryptocurrency to buy and sell NFTs. So it's all part of the digital revolution ecosystem.

And the second point I would make there is this is a fairly new space. So we're really the first ones getting into this on the ground up, and again, just trying to find the purest legitimate names that are publicly listed. So, as you see more companies enter the space, the index methodology would naturally sort of end up picking them up if they fit the standards of commercializing, investing, and creating NFTs.

AKIKO FUJITA: What kind of take-up have you seen so far? I mean, to the point you made, this is still really new. There's a lot of investors out there who are maybe not ready to invest directly. It feels like an ETF like this, it really is about kind of narrowing the divide a little maybe. But can you talk a bit more about that for those who don't want to invest directly, they're not as familiar? What does this ETF offer?

SYLVIA JABLONSKI: Yeah, that's a great question. And I think what's been really cool about ETFs in the past few months, particularly with the launch of some of the cryptocurrency-related products that came out, is that it's sort of democratizing access to digital assets and cryptocurrency to the masses. So you're right. A lot of people have no idea how to set up a digital wallet or just aren't comfortable trading direct in terms of buying Bitcoin, Ethereum, you know, Polygon, whatever it might be, NFTs.

And so, they're going to miss out on that. They might believe in those opportunities. They might like to speculate. They might like to invest for the future because they think it's going to grow. But they're not really looking to enter that digital world direct. So, you know, the closest thing you can do in a sort of cost efficient, transparent way, so you don't have, like, a 2% platform fee to trade this-- it's a management fee of 65 bips-- is you buy this ETF, and you get exposure to names that have a strong exposure to the NFT theme. And buy and sell them in your stock trading account as you would any other sort of equity or ETF.

So I think it's really cool to have different versions of products out there. You have it with Bitcoin, whether you could buy the Bitcoin, you could buy the futures. You can buy the ETF that uses futures to track the price. Same thing here. You can buy an NFT, or you can buy NFTZ.

ZACK GUZMAN: Yeah, and 65 bips, you know, not as high as some of the other things we've seen out there, too. And, you know, NFT, it sounds like you're going have to rebalance this one a bit, depending on what pops up and what opportunities pop up. But in terms of maybe direct exposure, you know, we have seen kind of fractionalization start to come into the NFT space.

I'm thinking about the Beeple NFT that really shot all this out there in the mainstream when we saw that painting, or GIF rather, sell for more-- JPEG-- sell for more than 60 million. So, like, that was a piece of fractionalizing some of this. But when you look at maybe direct ownership here, curious if you own any of these NFTs directly, if you've seen any projects that you've been excited by or if you're kind of tapping into that directly now, too.

SYLVIA JABLONSKI: Yeah, so, you know, when we started talking about this as a firm in terms of launching it, you know, there was just so much interest in the space. And the People news came out. So, you know, I did go out and buy an NFT, actually. I ended up buying my little son a Mattel NFT because I thought I should have that experience, right? And it was really cool. It's sort of a creative thing. What's really neat about NFTs is that it's sort of different than investing in the stock market and investing in a company, right? If I invest in whatever company it is, I buy the stock price. If the company does well, the stock price goes up. I make money, great.

But this is a little bit different. If I invest in an NFT, I can actually co-create with the creator. I can have this relationship with the creator where I determine the future path of that artwork. I have input into that artwork. I can participate in chat rooms and talk about, like, why we did what we did and things like that. So I think it's a cultural revolution in that it's really showing the purity of the sharing economy between the investor and the creator.

So, yeah, I mean, I'm super interested in it myself. I think it's going to be a massive growing space. The growth of the Metaverse really put this on the map I think 100-fold because you're going to need NFTs, basically, to go to concerts in the Metaverse, to own land, to represent the fashion choices you have, to trade art, music, codes for meetings, things like that. So I just think it's absolutely going to blow up. And it's a really fun thing to participate in.

AKIKO FUJITA: Sylvia Jablonski, Defiance ETFs co-founder and CIO, good to talk to you today. Appreciate the--

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