Thomas Daniels
ARK Invest and 21Shares have revised their proposal for an Ethereum-based exchange-traded fund (ETF), opting to exclude the cryptocurrency staking feature from their plan. This adjustment was made following productive negotiations with the U.S. Securities and Exchange Commission (SEC), which have led the firms to adopt a cash creation and redemption model for the ETF.
Initially, the firms had considered an in-kind redemption approach, where payments were made non-monetarily using Ether. However, the revised strategy now involves purchasing Ether in amounts corresponding to the order placed and depositing it with a custodian, which will facilitate the creation of ETF shares.
In their latest regulatory filing on May 10, the section that previously suggested 21Shares would engage third-party providers to stake a portion of the fund’s assets was omitted. The earlier filing on February 7 had outlined plans for receiving Ethereum staking rewards, which were to be recognized as income generated by the fund.
Eric Balchunas, a cryptocurrency analyst at Bloomberg, commented on the development via social media, noting, “ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, updating it to feature only cash creations among other adjustments that align it with the recently approved spot BTC ETF prospectus.”
Despite these changes, the filing retains comprehensive discussions on risks associated with staking, such as potential losses from slashing penalties, the temporary inaccessibility of funds during bonding and non-bonding periods, and the possible effects on Ethereum’s market price.
The regulatory pathway for launching a spot Ethereum ETF has been fraught with delays. Following the pattern of their previously approved spot Bitcoin ETF, ARK Invest and 21Shares adjusted their application on February 8, signaling a shift toward a cash-creation model. This strategic pivot aims to align the Ether ETF closely with the SEC’s demonstrated regulatory preferences.
As the SEC deliberates over various spot Ether ETF applications, including those from notable firms such as Invesco Galaxy, Grayscale, Franklin Templeton, VanEck, and BlackRock, the crypto investment landscape is poised for potential shifts. These could enhance institutional involvement and the mainstream acceptance of Ethereum as an investable asset.
Notably, other major players like Fidelity and Grayscale are incorporating staking features into their Ethereum ETF applications, seeking to capitalize on staking rewards within a regulated framework and offering investors additional income opportunities.
However, U.S. legislators continue to scrutinize cryptocurrency ETFs, citing substantial investor risks. The SEC’s decisions in the coming weeks, particularly on the applications from VanEck and ARK Invest/21Shares, will be critical in shaping the future of cryptocurrency investments and regulatory practices.
