Cash Creation
Creating new fund shares by delivering cash, which the fund or its trading agent then uses to buy the underlying asset.
Under cash creation, the authorized participant wires money instead of coins, and the sponsor's execution agent buys the asset in the market. This keeps regulated broker-dealers away from directly handling digital assets, which is why United States spot products launched with cash creation as the required model. The trade-off is that execution costs and slippage occur inside the vehicle and therefore show up in the value per share, rather than being absorbed by the authorized participant. Which model a product uses is disclosed in its registration statement and can change over time.
In practice
Under cash creation, a product's disclosed execution agent buys the asset after receiving cash, and any difference between the benchmark price and the achieved price is borne by the vehicle.
The common misunderstanding
That cash creation makes a product synthetic, when the vehicle still buys and holds the actual asset and only the settlement leg with the authorized participant is in cash.