Risks with Swap Based ETFs (HXT/HXS/HXDM) that I don't see people talking about

Unless the cash is being held in T-Bills or Bank of Canada deposits, how is Horizons earning the CDOR interest rate on a risk-free basis?

You kind of answered your own question, they can't. So there is certainly counterparty risk injected into such. Which would be a problem if the Canadian banking system/economy had a systemic liquidity event. Given that the yield curve is inverted, the risks of such are actually heightened as an inverted yield curve is well known to destroy the capital of entities that fund long-term assets with short-term debt. Particularly Canadian RE borrowers, which in turn would infect the banks if they're systemically bankrupted.

It may not be much counterparty risk, but certainly there were examples of what were thought to be high-quality money market mutual funds in 2008 "breaking the buck" during the financial crisis of the time. Of which the conditions are prime for an encore of even greater severity. Probably should own gold to hedge against that, but that's a whole different thread altogether...

It's entirely possible that the capital gain inclusion rate could increase to 75% or 100%.

Haven't heard even the slightest of policy discussions around such from anyone involved in politics except the most die-hard socialist/leftist types fpr a higher capital gains tax rate. Obviously the same risk as buying an ETF product that holds the underlying directly, rather than through futures contracts. However, there could be some risk that in a really bad financial crisis, that governments substantially regulate and ban derivatives, much like a stroke of the pen saw a massive crackdown on income trusts.

Counter-party risk does not automatically cap at 10%. If the Canadian economy collapsed and all of a sudden the SP500 or International developed is worth 2x more than they were, and the Canadian banks are failing, you are not going to be hedged the same way as holding US/international stocks directly.

What if the opposite happens, the CAD$ surges at such a rapid pace that they can't add enough short notional exposure of the foreign currencies to hedge them back into CAD$? Or if its a particularly violent swing, ie: the CAD/USD pair goes up 25% one day, then down 25% the next. I think these funds would have problems as they simply couldn't adjust their hedging fast enough. Tracking error would be huge. As it stands, tracking error tends to be very bad on foreign currency hedged funds against their forex-adjusted benchmarks.

The gains on the TRS build up over time, which is your mark-to-market. How are these gains not being distributed? Horizons says they manage this by passing the gains down to the market makers who make redemptions, but could there be a nasty capital gains surprise one day? Even as far as capital gains for all existing investors since the inception of the fund (similar to what happened with XGRO in 2018 when the ETF changed their strategy?)

Of course that's true. A tax or policy change could unwind the strategy. If you buy something like XIU, you can theoretically redeem XIU for a basket of 60 stocks, which you can either use to subscribe to another ETF providers' units, or transact on a managed basis.

I personally agree that those sorts of ETFs you describe are too obsessed with tax, which may hide risks or poor operational performance and risk management. Given you can build a Vanguard or iShares portfolio of the major indices for 20bp annually or less in management fee and tracking error, what's the point?