Unlike mutual funds, ETFs don’t buy/sell shares, they only exchange them with authorized participants).
But what does it mean? There is no tax created ever in any case for Scenario 3 ? Somehow I feel it only works when there are continuous net inflows
Well it never buys or sell shares, so it never creates capital gain (that’s the beautiful thing about the financial engineering behind ETFs)
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Interesting. So the AUM keeps growing without any buy / sell.
This sounds awesome. 
I think then most likely the assumption is that capital gains is only realised when the investor makes the gains which is scenario 2 …
https://www.wisdomtree.com/investments/-/media/us-media-files/documents/resource-library/etf-education/tax_benefits.pdf explains this as well
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Art. 16 al. 3 LIFD/DBG