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ARK, 21Shares strike staking feature from Ethereum ETF plans

ARK Invest and 21Shares have decided to remove the crypto staking feature from their Ethereum (ETH) exchange-traded fund (ETF) proposal. 

Changes in staking plans, SEC’s response

The decision to eliminate staking from the ETF structure follows successful discussions with the U.S. securities regulator, leading to a transition to a cash creation and redemption model.

This shift signifies a significant strategic pivot from the previously considered in-kind redemption model, where non-monetary payments such as Ether were utilized.

Under the revised cash-creation model, ARK Invest and 21Shares will now purchase Ether corresponding to the order amount and deposit it with the custodian, facilitating the creation of ETF shares.

In a recent filing submitted on May 10, the section indicating that 21Shares would stake a portion of the fund’s assets through third-party providers was removed. Previously, it mentioned the possibility of staking through trusted providers. 

In their Feb. 7 filing, the companies mentioned that 21Shares expected to receive ETH rewards for staking and intended to classify these earnings as income generated by the fund.

“Here we go again,” Eric Balchunas, a crypto analyst with Bloomberg, said on social media. “ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, looks like they updated to be only cash creations and some other things that bring it in line [with] the recently approved spot BTC ETF prospectus.”

See below.

The updated filing retains broader discussions, such as potential losses due to slashing penalties, temporary inaccessibility of funds during bonding and nonbonding, and the potential impact on Ethereum’s price. 

Spot Ethereum ETF launch faces regulatory delays

On Feb. 8, ARK Invest and 21Shares adjusted their application for a spot Ethereum exchange-traded fund (ETF), shifting towards a cash-creation model akin to their previously approved spot Bitcoin ETF.

The amendment, filed on Feb. 7, also includes plans to potentially stake a portion of the ETF’s Ether (ETH) holdings, aiming to generate additional income through staking rewards.

The transition from an in-kind redemption model, where non-monetary payments such as BTC were used, to a cash-creation model marks a significant strategic pivot for ARK 21Shares.

Under the new model, the firms will buy Ether corresponding to the order amount and deposit it with the custodian, leading to the creation of ETF shares.

This move aligns the Ether ETF closely with the regulatory preferences demonstrated in the approval of Bitcoin ETF.

Despite the promising prospects of the spot Ether ETF, the Securities and Exchange Commission (SEC) has been experiencing delays in making decisions on various spot Ether ETF proposals.

The Invesco Galaxy spot Ethereum ETF proposal, along with proposals from industry giants like Grayscale, Franklin Templeton, VanEck, and BlackRock, have all faced delays in the decision. 

The SEC is now tasked with making critical decisions on spot Ether ETF applications. VanEck’s spot Ethereum application must be ruled on by May 23, followed closely by the application from ARK Invest and 21Shares on May 24. 

These decisions carry significant implications for the crypto investment landscape. They could increase institutional participation and mainstream acceptance of Ether as an investable asset.

Fidelity and Grayscale have integrated staking features into their Ethereum ETF applications. This move aims to tap into income opportunities within regulated finance while offering investors exposure to Ethereum’s staking rewards.

U.S. lawmakers, however, scrutinize crypto ETFs citing investor risks. The SEC, responsible for assessing these ETF applications, faces the challenge of balancing the benefits of staking with regulatory risks and investor protection.