The submission included a provision allowing for the staking of a segment of the fund’s assets.
Fidelity Investments (Fidelity) has submitted a registration to the United States Securities and Exchange Commission (SEC) to launch a spot Ethereum (ETH) exchange-traded fund (ETF). The filing notably includes an option to stake a portion of the fund’s assets.
As per the S-1 filing, the proposed ETF will be tradable on the Cboe BZX Exchange, with Fidelity’s digital asset division acting as the custodian for the trust’s Ethereum holdings. However, Fidelity has not disclosed details regarding the staking infrastructure they plan to utilize.
Nevertheless, integrating staking into the ETF structure introduces additional risks, as outlined in the application. Fidelity’s registration statement highlights that existing regulatory measures in the US and other jurisdictions could potentially impact the fund’s status.
Termination of Fidelity’s fund may be initiated by the SEC if the Commission finds that it violates the 1940 Act, enacted on August 22, 1940, governing investment funds regulation in the US alongside other financial regulations like the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The 1940 Act aims to safeguard investors and the public interest by mandating investment firms to disclose material information and address conflicts of interest.
Covering various investment entities such as mutual funds, closed-end funds, hedge funds, private equity funds, and holding companies, the 1940 Act requires mutual funds to limit leverage and maintain adequate cash reserves to facilitate share redemptions.
Despite updates over the years, the 1940 Act poses challenges for an Ethereum ETF, posing risks for Fidelity due to potential penalties and liquidity risks in the staking process.
Uncertainty surrounds the SEC’s classification of Ethereum (Ether/ETH) as a security, prompting GOP lawmakers to seek clarification. The tax status of staking rewards remains ambiguous, with potential tax liabilities for investors regardless of trust distributions.
An undisclosed “state authority,” speculated to be the SEC, investigated the Ethereum Foundation, fueling concerns about Ethereum’s security status. The SEC has delayed decisions on seven ETF applicants, with a decision expected by May 23.
