Key Points

• Fidelity has applied to the SEC for approval to launch an Ether (ETH) ETF.
• If approved, the ETF would enable Fidelity to stake some of their ETH holdings.

Fidelity has filed an S-1 application with the SEC to create an Ether (ETH) ETF. Upon approval, Fidelity will be able to stake a portion of their ETH.

Fidelity’s Proposed Ethereum ETF

The proposed ETF from Fidelity would be traded on the Cboe BZX Exchange. Fidelity Digital Asset Services, in connection with sponsor FD Funds Management, would serve as the custodian for the trust’s ETH. As per the S-1, the trust intends to implement a staking program through one or more staking infrastructure providers. However, this decision carries certain risks as detailed in the application, such as potential loss, including 'slashing' penalties and liquidity risks during the staking process. Moreover, staking rewards would be considered as income for the fund, resulting in taxable events for investors even if no distribution is made by the Trust.

The application does not outline the ETF's expected fees. In case of a fork, the custodian will determine which chain the fund will support. The form also mentions various risks associated with the ETF, including regulatory uncertainties in the United States and globally. Termination of the trust could occur due to various reasons, including regulatory intervention from the SEC or the U.S. Commodity Futures Trading Commission. The SEC's investigation into the Ethereum Foundation might impact the approval chances for the spot ETH ETF, alongside political opposition. The Ethereum blockchain is vulnerable to a 51% attack, where an attacker gains control through a majority vote. Analysts believe that introducing a spot ETH ETF could lessen DAOs' influence but introduce new concentration risks based on how ETFs distribute their ETH among stakers. The SEC has extended the approval deadline for other ETH ETFs to May 23, with eight applications awaiting a decision.