Key Points
Fidelity has lodged an S-1 application with the United States Securities and Exchange Commission (SEC) to establish an Ether (ETH) ETF.
If the application is successful, Fidelity will gain the ability to stake a portion of the ETH it owns.
Fidelity’s Proposed Ethereum ETF
The ETF proposed by the asset management giant would be traded on the Cboe BZX Exchange.
Fidelity Digital Asset Services, affiliated with sponsor FD Funds Management, would act as the custodian of the trust’s ETH.
According to the S-1, the trust plans to establish a program to stake a portion of the trust’s assets via one or more staking infrastructure providers.
However, this decision carries additional risk, as outlined in the application.
There could be a risk of loss, including in the form of ‘slashing’ penalties and liquidity risks while the stake is being processed.
Additionally, staking rewards would be treated as income for the fund for tax purposes, creating a taxable event for investors “without an associated distribution from the Trust.”
The application does not provide details on the expected fees for the ETF.
In the event of a fork, the custodian will decide which chain the fund will support.
The form also highlights various other risks associated with the ETF.
Regulatory measures in the United States and elsewhere could have a negative effect on the fund.
The termination of the trust could be triggered by several potential causes, including regulatory action from the SEC or the U.S. Commodity Futures Trading Commission.
The SEC is reportedly scrutinizing the Ethereum Foundation, which analysts suggest could affect the chances of the spot ETH ETF being approved.
Political opposition to spot ETH EFTs has also been noted.
The Ethereum blockchain is also susceptible to a 51% attack, where a malicious actor could seize control of the network’s governance through a majority vote.
Analysts have suggested that the introduction of a spot ETH ETF could diminish the influence of DAOs, but create new “concentration risk” depending on how ETFs choose to distribute their ETH among stakers.
The SEC has postponed the approval deadline for other ETH ETFs to May 23.
There are currently eight applicants for spot ETH EFTs awaiting an SEC decision.