Fidelity Ethereum Fund staking filing seeks quarterly cash payouts
Fidelity has proposed staking ETH held by FETH and sharing some rewards, but the SEC must first make the amendment effective.
By Theo Nakamura · Staff Writer
· 3 min read
Fidelity has filed to add staking to the Fidelity Ethereum Fund, ticker FETH, a change that could eventually give shareholders quarterly cash payments from Ethereum network rewards. The Fidelity Ethereum Fund staking proposal is not active yet: Decrypt reported that the amendment requires the Securities and Exchange Commission to declare FETH’s registration statement effective before it can take effect.
The filing, submitted Aug. 11, would alter what the fund aims to deliver. Rather than seek to track the Fidelity Ethereum Reference Rate after fees, FETH would target that benchmark plus an amount tied to staking rewards, according to Decrypt’s account of the amendment. That does not mean shareholders have been promised a payout or a particular return.
Fidelity identifies FETH as a spot crypto exchange-traded product, or ETP, that gives eligible brokerage-account holders exposure to ether. The firm says FETH holds cryptocurrency rather than securities and therefore is not governed by the Investment Company Act of 1940 in the same way as a conventional ETF.
How would Fidelity Ethereum Fund staking payouts work?
Staking is part of Ethereum’s proof-of-stake system. Investors lock ETH to help validate transactions on the network, which can generate rewards. Fidelity says staked coins are locked and cannot be used until they are withdrawn.
Under the proposed arrangement, Fidelity could send ETH through custodians, including Anchorage Digital, BitGo and Fidelity Digital Assets, to node operators that run the validator systems, Decrypt reported. The fund could stake as much as all of its ETH in normal conditions, although it would not be required to stake a minimum amount.
The rewards would first be allocated among node operators, custodians and Fidelity for fees. The trust would keep part of the remainder. It would then convert staked ETH into dollars and make quarterly cash distributions to shareholders of record, according to the report.
What are the limits and risks for FETH shareholders?
Those potential distributions would be discretionary, not a fixed dividend. Decrypt reported that Fidelity could pause or end them, and that Fidelity expects the rewards to count as income for tax purposes. The report did not state a payout rate or how much of the gross rewards would remain after fees.
The proposed structure also brings staking-specific risks. A validator can face “slashing,” a penalty for misconduct, which can reduce staked assets. Unstaking can also create delays in making ETH available. Decrypt reported that Fidelity may extend redemption timelines if it needs to manage those liquidity constraints.
Fidelity separately warns that its spot crypto ETPs are single-cryptocurrency products for investors with high risk tolerance and may be volatile or illiquid. Investors could lose their entire investment, the firm says.
This story draws on original reporting from Decrypt.
