ARK Invest and 21Shares have decided to remove the cryptocurrency staking feature from their Ethereum (ETH) exchange-traded fund (ETF) proposal.
Changes in Staking Plans, and the SEC's Response
The decision to remove quotas from the ETF structure follows successful discussions with the US securities regulator, which led to a move to a cash creation and redemption model.
This shift marks an important strategic pivot from the in-kind redemption model considered previously, where non-cash payments such as Ethereum were used.
Under the revised cash creation model, ARK Invest and 21Shares will now purchase Ether equal to the order amount and deposit it with the custodian, facilitating the creation of ETF shares.
at recent days Deposit Introduced on May 10, the section indicating that 21Shares would share a portion of the fund's assets through third-party service providers was removed. Previously, the possibility of staking through trusted providers was mentioned.
In its February 7 filing, the companies stated that 21Shares expects to receive ETH rewards for staking and intends to classify these earnings as income generated by the fund.
“Here we go again,” Eric Balchunas, a cryptocurrency analyst at Bloomberg, said on social media. “ARK/21Shares just filed a revised Form S-1 for its spot ETF, and it appears that it has been updated to just be cash creation and a few other things that bring it in line (with) the recently approved spot BTC ETF prospectus.”
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The updated file maintains broader discussions, such as potential losses due to reduced sanctions, temporary inaccessibility of funds during correlation and de-correlation, and the potential impact on Ethereum's price.
Spot Ethereum ETF launch faces regulatory delays
On February 8, ARK Invest and 21Shares amended their application for an Ethereum Spot ETF (ETF), shifting towards a cash creation model similar to the previously approved Spot Bitcoin ETF.
The amendment, which was filed on February 7, also includes plans to potentially stake a portion of the ETF's ETF (ETH) holdings, with the aim of generating additional income through staking rewards.
The transition from an in-kind redemption model, where non-cash payments such as BTC were used, to a cash creation model represents an important strategic focus for ARK 21Shares.
Under the new model, companies would purchase ether equal to the order amount and deposit it with a custodian, creating ETF shares.
The move aligns the Ether ETF more closely with the regulatory preferences outlined in the approval of the Bitcoin ETF.
Despite the promising prospects of an Ether spot ETF, the SEC has seen delays in making decisions on various spot ETF proposals.
The Invesco Galaxy Spot 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 spot Ether ETF applications. VanEck's spot order for Ethereum should be judged by May 23, followed closely by the order from ARK Invest and 21Shares on May 24.
These decisions carry significant implications for the cryptocurrency investment landscape. They can increase institutional participation and mainstream acceptance of ether as an investable asset.
Fidelity and Grayscale have integrated staking features into their Ethereum ETF applications. The move aims to capitalize on income opportunities within regulated finance while offering investors the opportunity to earn staking rewards on Ethereum.
However, US regulators are scrutinizing cryptocurrency ETFs citing risks to investors. The Securities and Exchange Commission, which is responsible for evaluating ETF applications, faces the challenge of balancing the benefits of staking with regulatory risks and investor protection.
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