- The narrative around spot Ethereum ETFs flipped this week, with observers now expecting approval.
- Some applicants have U-turned on staking ETH as part of their ETF funds’ operations.
- Cathie Wood holds hope that the situation will change in the future.
The prospects of the Securities Exchange Commission (SEC) approving spot Ethereum ETFs appeared bleak going into this week. Observers cited the regulator’s lack of engagement as a worrying sign. However, the narrative flipped on Tuesday when the SEC called on applicants to submit amended 19b-4 forms, which reignited hopes for ETF approval.
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In the wake of the SEC’s directive, several Ethereum ETF applicants re-submitted their regulatory paperwork, with observers noting the removal of staking as part of the funds’ usual business operations.
Ethereum Staking Out
The re-submitted 19b-4 forms from Fidelity, VanEck, Invesco/Galaxy, Ark/21Shares, and Franklin Templeton showed the removal of Ethereum staking from the operations of the ETF funds. Bloomberg analyst James Seyffart noted that the filings now contain “very clear language” that the funds’ ETH holdings “cannot be staked by anyone.”
The previous submissions had stated that the providers would stake a proportion of their ETH through trusted staking providers. However, this would have introduced custodial risk, as the ETH would essentially have been given to centralized exchanges.
Furthermore, Ethereum’s staking protocol operates a “slashing” mechanism that penalizes validators for unethical behavior like proposing conflicting blocks. This could result in the loss of staked ETH, presenting another risk to the ETF funds and their buyers.
Investor Adam Cochran framed the removal of staking from ETF products as net positive, stating that the ETH tied in with ETF funds would drive up APY staking yields for other ETH holders.
FIT21 Gathers Pace
An interview with Ark Invest CEO Cathie Wood from March indicated that the firm suspected that the SEC was opposed to Ethereum ETF staking. Wood stated that Ark was in talks with regulators on the matter at the time. However, despite Wood’s suspicions, she believed that amendments to allow ETF staking in the future could still happen, either by way of incoming legislation or a change of regulator.
The House will vote on the Financial Innovation and Technology for the 21st Century Act (FIT21) this week. This bill aims to establish a comprehensive legal framework for digital assets, including clear jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission’s (CFTC) oversight of the crypto industry.
Some observers believe that having the CFTC oversee the entire crypto market would benefit the industry more than the current SEC supervision arrangement.
On the Flipside
- Other blockchains offer direct on-chain staking with no slashing.
- ETH ETF applicants are prioritizing approval over returns.
Why This Matters
Staking is an integral part of Ethereum, and by conceding on staking, the applicants are signaling their willingness to make strategic sacrifices to gain regulatory approval for their investment products.
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