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Fidelity Investments has amended its application for an ethereum (eth) spot exchange-traded fund (ETF) to include a staking feature, according to a regulatory filing.
He amendment It was filed with the US SEC on March 18 and has generated significant interest in the industry, but analysts and market observers have mixed feelings. It introduces the ability for the ETF to engage in staking activities, a core aspect of ethereum's functionality following its shift to a Proof-of-Stake (PoS) model.
The amendment comes days after US politicians wrote to the SEC to block more cryptocurrency-related ETFs over concerns about the risk it posed to retail investors.
ETF with participation
Through the proposed amendment, the ETF could allocate a portion of its holdings for staking through designated staking providers, which may include Fidelity affiliates.
Staking involves participants locking digital assets to support network security and operations in exchange for rewards in the form of additional cryptocurrency. Fidelity's move aims to explore the income-generating potential of betting within the framework of a regulated financial product.
According to the document:
“In consideration for any staking activities in which the Fund may engage, the Fund would receive certain network rewards in the form of ether tokens, which may be treated as income to the Fund as compensation for services provided.”
The SEC has historically been very cautious about cryptocurrency-related financial products and, in particular, rejected bitcoin spot ETFs for years before finally relenting after a court ruled against its decisions.
The regulator has yet to decide on ethereum ETF applications and is expected to approve or reject them before the May deadline. Experts were initially optimistic about approval, but have since revised the odds to about 35%.
Mixed feelings
The inclusion of staking in Fidelity's ETF application raises intriguing questions about SEC reception and the future regulatory landscape for digital assets. The move has sparked mixed reactions within the industry, but has failed to shift sentiment towards optimism.
Bloomberg analyst James Seyffart remains skeptical about the SEC's willingness to greenlight ethereum and said the amendment has not changed the base case for approval, which remains negative.
He added:
“To be clear, I don't think they *should* refuse. But at this point I think they will be.”
Meanwhile, Zack Guzmán, a former Yahoo Finance reporter, suggested that Fidelity's decision to add staking to its ETF application could be a strategic move to more closely align with SEC expectations or a potential point of contention that could complicate approval.
As the SEC reviews Fidelity's amended ethereum ETF application, the decision could set a precedent for future crypto ETFs, especially those looking to incorporate staking or other native blockchain functionality.
The outcome will be closely watched by investors, regulators and the digital asset community as it could mark a pivotal moment in the integration of traditional financial products with the innovative features of digital assets.
