In-kind creation and redemption
A process in which ETF shares are created or redeemed by exchanging the underlying assets themselves, rather than cash, between the fund and authorized participants.
Also called: In-kind creations, in-kind redemptions
In an in-kind creation, an authorized participant delivers a basket of the fund’s underlying assets, such as bitcoin, to the ETF and receives new shares. In an in-kind redemption, it returns shares and receives the assets. In a cash model, the AP delivers or receives cash and the fund itself buys or sells the asset. The SEC approved in-kind creation and redemption for spot crypto ETPs in July 2025, after initially allowing only cash.
In-kind processes are standard for equity ETFs because they reduce trading costs inside the fund and can improve tax efficiency, since the fund does not sell assets to meet redemptions. For crypto funds, in-kind flows also reduce the issuer’s need to trade at market close and let market makers manage inventory more efficiently, which can tighten spreads.
For allocators, the creation model affects tracking, costs and tax outcomes. Example: a market maker holding bitcoin delivers it directly to a spot ETF to create shares instead of selling the bitcoin for cash first.
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Part of the BlockWest Glossary, plain-language definitions for markets, AI and digital assets. Educational content, not investment advice.