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Ethereum ETFs: Fidelity Removes Staking Rewards, Will Others Follow?

Published May 21, 2024 3:05 PM
Shraddha Sharma
Published May 21, 2024 3:05 PM

Key Takeaways

  • Fidelity has removed plans to stake Ether in its updated S-1 Ethereum ETF filing.
  • Other applicants might follow suit with odds of approval rising to 71%.
  • The SEC may decide on Ethereum ETFs in May but will not allow staking.

Fidelity Investments recently filed an updated S-1 application with the US Securities and Exchange Commission (SEC) for its proposed Ethereum ETF.

The update excludes previous plans to stake Ether (ETH) within the fund. The change may set a precedent for other firms in response to regulatory signals from the SEC.

Fidelity’s Ethereum ETF Has No Staking Involved

Fidelity Ethereum Fund has removed staking from its latest filing on  May 21. The exchange-traded product designed to track the performance of ether (ETH) via the Fidelity Ethereum Reference Rate indicated that it will stake a portion of the fund’s assets in its original filing. 

Staking is a process where investors lock up their ether to support network operations in exchange for rewards. However, the new filing clearly states that the fund will “not stake the ether” after Ark Invest made a similar move on May 10.

According to finance lawyer Scott Johnsson, the SEC might be solidifying its position on treating Ether as a security, setting a regulatory precedent for future Ethereum-related financial products.

Therefore, the decision could influence other applications. Especially with the SEC’s scrutiny over cryptocurrency staking activities, avoiding staking may become a trend for approval. 

Bloomberg analyst Eric Balchunas noted that the SEC’s stance on staking seems to be a definitive “no.” Community member jfab.eth suggested  on X that avoiding staking might be positive for ETH, reducing risks related to high concentrations of staked Ether on platforms like Lido and Coinbase.

SEC’s Approval Decision Could Turn Positive

The SEC has asked Nasdaq and CBOE to update their applications to list spot Ethereum ETFs, hinting at possible approvals, according to a report by Reuters .

With that, Standard Chartered is now positive on the approval of spot Ethereum ETFs, while predicting inflows within the first year. This optimistic outlook suggests a strong institutional demand for Ethereum without the complexities of staking.

However, the approval process for these ETFs involves multiple steps. The SEC’s recent engagement with exchanges indicates a positive direction, contrasting with the industry’s earlier expectations of rejection. 

Polymarket  contract, where people bet on whether an event will happen, had odds of 6% of participants believing that the ETF would be approved by May 31. However, this sentiment has shifted dramatically with 71% of participants believing that the approval would happen by that date. 

Polymarket Bets on Ethereum ETF Approval
Polymarket Bets on Ethereum ETF Approval

Odds Improve With Other Players to Follow 

Fidelity’s decision to exclude staking from its Ethereum ETF is a shift in how these financial products will be structured. 

By focusing on simplicity and reducing risks, the SEC might want other firms to follow suit. As the SEC’s regulatory stance becomes clearer, the approval odds of Ethereum ETFs look more promising than earlier.

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