ARK and 21Shares attack staking feature of Ethereum ETF plans

ARK Invest and 21Shares have decided to remove the crypto staking feature from their ethereum (eth) exchange-traded fund (ETF) proposal.

Changes in participation plans, response from the SEC

The decision to remove staking from the ETF structure follows successful discussions with the US securities regulator, which led to a transition to a cash creation and redemption model.

This change represents a significant strategic shift from the previously considered in-kind exchange model, where non-monetary payments such as Ether were used.

Under the revised cash creation model, ARK Invest and 21Shares will now purchase Ether corresponding to the order amount and deposit it with the custodian, facilitating the creation of ETF shares.

In a recent presentation filed on May 10, the section stating that 21Shares would invest a portion of the fund's assets through third-party providers was removed. Previously you mentioned the possibility of betting through trusted providers.

In their February 7 filing, the companies mentioned that 21Shares expected to receive eth rewards for staking and intended to classify these earnings as income generated by the fund.

“Here we go again,” Bloomberg crypto analyst Eric Balchunas said on social media. “ARK/21Shares just filed an amended S-1 for their Ether spot ETF, it looks like they were updated to be cash creations only and a few other things that align it (with) the recently approved btc spot ETF prospectus “.

See below.

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The updated presentation contains broader discussions such as potential losses due to haircut penalties, temporary inaccessibility to funds during pegging and unpegging, and the potential impact on the price of ethereum.

Spot ethereum ETF launch faces regulatory delays

On February 8, ARK Invest and 21Shares adjusted their application for a spot ethereum exchange-traded fund (ETF), moving toward a cash creation model similar to their previously approved bitcoin spot ETF.

The amendment, filed on February 7, also includes plans to potentially stake a portion of the ETF's Ether (eth) holdings, with the goal of generating additional income through staking rewards.

The transition from an in-kind reimbursement model, which used non-cash payments such as btc, to a cash creation model marks an important strategic shift for ARK 21Shares.

Under the new model, companies will purchase Ether corresponding to the order amount and deposit it with the custodian, resulting in the creation of ETF shares.

This move closely aligns the Ether ETF with the regulatory preferences demonstrated in the approval of the bitcoin ETF.

Despite the promising prospects of the Ether spot ETF, the Securities and Exchange Commission (SEC) has been experiencing delays in making decisions on several Ether spot ETF proposals.

Invesco Galaxy's ethereum ETF proposal, along with proposals from industry giants such as Grayscale, Franklin Templeton, VanEck and BlackRock, have faced decision delays.

The SEC is now tasked with making critical decisions on timely Ether ETF applications. VanEck's ethereum spot application must be decided by May 23, followed closely by ARK Invest and 21Shares' application on May 24.

These decisions have important implications for the cryptocurrency investment landscape. They could increase institutional participation and widespread acceptance of Ether as an investable asset.

Fidelity and Grayscale have integrated staking features into their ethereum ETF applications. This move aims to take advantage of revenue opportunities within regulated finance while also offering investors exposure to ethereum staking rewards.

However, US lawmakers are scrutinizing cryptocurrency ETFs citing risks to investors. The SEC, responsible for evaluating these ETF applications, faces the challenge of balancing the benefits of staking with regulatory risks and investor protection.