Fidelity Adds Staking To Spot Ethereum ETF Application

The firm submitted its amendment late Monday.

By: Pedro Solimano Loading...

Fidelity Adds Staking To Spot Ethereum ETF Application

Fidelity, the financial services giant managing $4.5 trillion in assets under management, has amended its spot Ethereum ETF application to include its intention to mobilize the prospective fund’s Ether for staking.

According to an updated filing submitted with the U.S. Securities and Exchange Commission (SEC) on March 18, Fidelity aims to stake a portion of the proposed exchange-traded fund’s Ether via a third-party staking provider.

“The Sponsor may, from time to time, stake a portion of the fund’s assets through one or more trusted staking providers, which may include an affiliate of the Sponsor,” the updated filing said. “In consideration for any staking activity in which the Fund may engage, the Fund would receive certain network rewards of ether tokens, which may be treated as income to the Fund as compensation for services provided.”

The SEC now has up to 90 days to respond to the amendment. The official deadline for BlackRock and Fidelity’s spot Ether ETF applications is set for May 23, with the SEC having delayed the deadline for its verdict on the funds nearly two weeks ago.

The governance tokens of leading liquid staking providers Lido (LDO) and Rocket Pool (RPL) briefly rallied in response to the news. However, the tokens have retraced, with Fidelity likely preferring to engage the services of a centralized and institutionally-focused staking provider, rather than a liquid staking protocol subject to tokenized governance.

LDO jumped 4% in less than an hour but has since erased its gains to sit at a 24-hour loss of 9.3%, according to CoinGecko. RPL rallied more than 5% over several hours but has pulled back for a daily gain of 1.6%.

Fidelity is the third asset issuer seeking to offer exposure to staking yields via a spot Ether ETF, with February filings from Ark Invest and Franklin Templeton similarly outlining plans to stake a portion of their ETFs’s Ether should the funds receive approval.

Staking allows asset holders to validate Proof of Stake blockchains by operating a node and locking up assets as collateral to disincentive misbehavior to receive a share of new coin emissions as rewards. Ethereum transitioned to PoS consensus in September 2022 after seven years of Proof of Work validation.

Analysts cool on spot Ether ETFs’ prospects

The updated filing comes as many experts are increasingly doubting that the SEC will approve a spot Ether ETF in late May.

“Fidelity not giving up on Ethereum ETFs and not giving up on SEC allowing them to Stake within the ETF,” tweeted James Seyffart, an ETF analyst for Bloomberg. “Our base case is still that these aren't gonna be approved.”

“Until issuers say the SEC’s reached out, approval shall remain in serious doubt,” added Eric Balchunas, Seyffart’s colleague. In January, Balchunas estimated the likelihood of the funds’ approval to be as high as 70%.

Some lawmakers are also pushing back against the approval of new crypto spot exchange-traded funds following the launch of spot Bitcoin ETFs in January. On March 11, Democratic senators Jack Reed and Laphonza Butler authored a letter to SEC head, Gary Gensler, requesting that no further crypto-based exchange-traded products (ETPs) receive approval to operate.

“The SEC’s [spot Bitcoin ETF] approvals have provided a green light for Wall Street to sell volatile cryptocurrency investments to ordinary Americans through their brokerage and retirement accounts,” the letter said. “We do not believe that other cryptocurrencies show the trading volumes or integrity to support associated ETPs… Retail investors would face enormous risks from ETPs referencing thinly traded cryptocurrencies.”

During a Feb. 13 panel, representatives from Bitwise Asset Management, Galaxy Asset Management, and Grayscale agreed that there is a 50% chance that the SEC will approve the pending spot Ether ETF applications, lining up with predictions from JP Morgan and Bernstein Trading.