Cboe Seeks SEC Approval for Staking in Fidelity’s Ethereum ETF

Cboe BZX, a prominent securities exchange, has submitted a formal request to the US Securities and Exchange Commission (SEC) to incorporate staking into Fidelity’s Ethereum ETF (FETH). This move, if approved, would allow investors to earn staking rewards directly from their ETF holdings, marking a significant shift in the crypto ETF landscape. Staking involves locking up ETH in a validator node to help secure the Ethereum blockchain, with investors earning rewards in return. The estimated annual percentage rate (APR) for staking Ether is around 3.3%, denominated in ETH.

Cboe’s proposed rule change would enable Fidelity Ethereum Fund to “stake, or cause to be staked, all or a portion of the Trust’s ether through one or more trusted staking providers.” Given that FETH currently manages nearly $1 billion in assets, introducing staking could significantly enhance returns for investors while maintaining exposure to Ethereum's price movements. This filing follows Cboe’s previous efforts to enable staking for the 21Shares Core Ethereum ETF in February, indicating a broader strategy to integrate staking mechanisms into regulated investment vehicles.

Ethereum is not the only blockchain network that offers staking. Other major cryptocurrencies, including Solana (SOL), also provide staking rewards, making the feature a critical component of yield generation in digital asset investing. The SEC’s approval is still pending, and its decision will be closely watched by the crypto industry. Notably, since the beginning of the new administration, the SEC appears to have softened its stance on cryptocurrency-related financial products.

In February, the SEC acknowledged over a dozen exchange filings related to crypto ETFs, including those focused on options trading, in-kind redemptions, and new types of altcoin funds. While regulatory uncertainty remains, this trend suggests a potential shift toward more accommodating crypto regulations. Cboe’s broader crypto ETF expansion plans include requests for permission to list WisdomTree and Canary’s proposed XRP ETFs and facilitate in-kind creations and redemptions for Fidelity’s Bitcoin (BTC) and Ethereum (ETH) ETFs.

The SEC’s decision on these proposals could have far-reaching implications for the crypto investment landscape, particularly regarding staking and ETF structure modifications. If the SEC approves staking for Fidelity’s Ethereum ETF, it would mark a watershed moment for crypto ETFs in the US. The decision could encourage other ETF providers to integrate staking features into their offerings, boost institutional adoption of Ethereum ETFs by making them more attractive as passive income-generating investment products, and support Ethereum’s staking ecosystem.

The SEC will need to evaluate the risks and regulatory implications of allowing staking in ETFs. One key consideration will be whether staking introduces additional counterparty risks or challenges related to custodianship and liquidity. Investors and analysts are now awaiting the SEC’s response, which could set a precedent for how staking is integrated into traditional investment vehicles in the US financial markets. Cboe’s push for staking in Fidelity’s Ethereum ETF represents a significant evolution in the crypto ETF space. As the SEC reviews the proposal, the decision could reshape institutional involvement in Ethereum staking and broaden the appeal of crypto-based ETFs.