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Fidelity Files S-1 Application, Seeks SEC Nod of Approval for Spot ETH ETF with Staking
- Fidelity has filed an application to create an Ethereum spot ETF, which includes the option to stake a portion of the fund’s Ether.
- Staking would generate additional revenue for fund investors, but could also introduce new risks and potentially create tax headaches.
- Analysts now believe it’s unlikely any Ethereum spot ETFs will be approved by the May 23 deadline, but remain confident they will be approved in the longer term.
Asset manager Fidelity, yesterday filed an S-1 application with the US Securities and Exchange Commission (SEC) to create an Ethereum spot exchange-traded fund (ETF) with the option to stake a portion of the fund’s assets to generate additional income for investors.
This application follows an amendment Fidelity filed last week to its ETF proposal that sought permission from the SEC to stake a portion of the ETF’s Ethereum holdings.
Details Of Fidelity’s Ethereum ETF Application
If approved, Fidelity’s Ethereum spot ETF would be named Fidelity Ethereum Fund and would trade on the Cboe BZX exchange.
According to the application, the fund’s Ether would be held by Fidelity Digital Assets Services, and as mentioned, some portion of the Ether would be staked “through one or more staking infrastructure providers”. No specific staking provider was mentioned in the application.
ETF Application Says Staking Introduces Risks
In its application Fidelity noted the decision to stake some of its fund’s Ether, while generating income for investors, also introduces some risks. This includes the risk of losses through ‘slashing’ penalties and liquidity risks while stakes are being processed.
Staking could also create some tax headaches for investors. When the fund receives staking rewards, it would generate a taxable event for investors. But they wouldn’t actually receive any distribution from the fund at that time—essentially meaning investors would need to pay tax on ‘income’ they haven’t yet received.
Market analysts have also suggested Ethereum spot ETFs that include staking could lead to increased “concentration risks” if custodians aren’t careful about how the staked Ether is distributed among staking providers. Already the three largest Ethereum staking pools control almost 50% of all staked Ether, with the largest pool, Lido DAO controlling over 30% alone.
The application also outlines a number of regulatory risks which could impact the fund and even lead to its termination.
What’s The Short-Term Outlook For ETH Spot ETFs?
It’s looking less and less likely that we’re going to see Ethereum spot ETFs approved when the approval deadline rolls around on May 23.
Related: SEC Investigates Crypto Firms Amid Ethereum Probe, Dampening ETF Hopes
In January Bloomberg ETF analyst, Eric Balchunas, put the odds of approval at around 70%, but he has since revised that estimate way down and now says there’s only a 35% chance we’ll see any Ethereum spot ETF approved by the deadline date.
Balchunas told Coin telegraph that the lack of communication from the SEC to ETF applicants and the political blowback against SEC Chair Gary Gensler following the approval of Bitcoin Spot ETFs don’t bode well.
If the applications aren’t approved by the upcoming deadline, then all applicants, of which there are now eight, will need to reapply and hope to be approved at some later date.
Author
Jody McDonald
Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.
