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) offerings.

Changes in staking plans, SEC response

The decision to remove staking from the ETF structure followed successful negotiations with the US securities regulator, leading to a switch to a cash generation and redemption model.

This shift marks a significant strategic departure from the previously discussed in-kind payment model, which used non-monetary payments such as Ether.

Under the revised cash generation model, ARK Invest and 21Shares will now purchase Ether corresponding to the order amount and deposit it to the custodian, making it easier to create ETF shares.

In a recent filing filed on May 10, the section stating that 21Shares would share some of the fund’s assets through third-party providers was removed. He has previously mentioned the possibility of staking through trusted providers.

In their filing on February 7, the companies stated that 21Shares expects to receive ETH rewards for staking and that they intend to classify these earnings as income generated by the fund.

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

See below.

WE BEGINNING AGAIN: ARK/21Shares files an amended S-1 for spot Ether ETF; apparently it has been updated to be cash creations only and some other things have also been updated which brings it in line with the recently approved spot btc etf prospectus. pic.twitter.com/clN2oZmA6I

— Eric Balchunas (@EricBalchunas) February 7, 2024

The updated dossier includes broader discussions such as potential losses from mitigating penalties, temporary inaccessibility of funds during connecting and unconnecting, and the potential impact on the price of Ethereum.

Spot Ethereum ETF launch faces regulatory delays

On February 8, ARK Invest and 21Shares set up spot Ethereum exchange-traded fund (ETF) filings, leaning towards a cash generation model similar to previously approved spot Bitcoin ETFs.

The change, introduced on February 7, also includes plans to potentially stake some of the ETF’s Ether (ETH) holdings, aiming to generate additional income through staking rewards.

The transition from an in-kind redemption model using non-monetary payments such as BTC to a cash generation model marks an important strategic turning point for ARK 21Shares.

According to the new model, companies will buy Ether corresponding to the order amount and deposit it to the custodian, thus creating ETF shares.

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

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

The Invesco Galaxy spot Ethereum ETF proposal, as well as proposals from industry giants such as Grayscale, Franklin Templeton, VanEck and BlackRock, have also 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 decided by May 23, followed by applications from ARK Invest and 21Shares on May 24.

These decisions carry important consequences for the crypto investment landscape. They can 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 capitalize on income opportunities within regulated finance while allowing investors to benefit from Ethereum’s staking rewards.

But US lawmakers are examining crypto ETFs, citing investor risks. The SEC, which is responsible for evaluating these ETF applications, faces the challenge of balancing the benefits of staking with regulatory risks and investor protection.