ARK and 21Shares Remove Staking Feature from Ethereum ETF Plans

ARK Invest and 21Shares have made a significant amendment to their proposed Ethereum exchange-traded fund (ETF) by removing the staking feature. This strategic decision comes after discussions with the U.S. Securities and Exchange Commission (SEC), transitioning the ETF to a cash creation and redemption model.

Details of the Amendment

The original ETF proposal included a staking feature, where a portion of the fund’s Ethereum (ETH) holdings would be staked through third-party providers, earning rewards classified as income. However, the updated filing, submitted on May 10, 2024, eliminates this component, shifting entirely to a cash creation model. Under this model, ARK Invest and 21Shares will purchase Ethereum corresponding to the order amount and deposit it with the custodian to facilitate ETF share creation.

Rationale Behind the Change

This change aligns the Ethereum ETF more closely with the regulatory preferences demonstrated in the approval of Bitcoin ETFs. By adopting a cash creation model, ARK and 21Shares aim to streamline the ETF structure, potentially easing the SEC’s regulatory concerns. Crypto analyst Eric Balchunas highlighted this move as a strategic pivot to align with the recently approved spot Bitcoin ETF prospectus.

Broader Regulatory Context

The SEC’s cautious approach to crypto ETFs has resulted in delays for several proposals. The Invesco Galaxy spot Ethereum ETF and others from Grayscale, Franklin Templeton, VanEck, and BlackRock are still awaiting decisions. The amended ARK 21Shares proposal reflects a broader trend of adapting ETF structures to meet regulatory expectations, which could pave the way for future approvals.

Potential Impact on the Market

If approved, the ARK 21Shares Ethereum ETF could significantly boost institutional participation in the crypto market. By providing a regulated investment vehicle, the ETF would offer a more accessible entry point for traditional investors. However, the removal of the staking feature means that the fund will no longer generate staking rewards, which could affect its appeal to some investors seeking additional income opportunities within regulated finance.

Future Prospects and Industry Reactions

The removal of the staking feature underscores the challenges and complexities of navigating the regulatory landscape for crypto ETFs. Industry stakeholders are closely watching the SEC’s upcoming decisions on various ETF proposals, with the potential for significant market implications. The SEC’s rulings on VanEck’s and ARK Invest’s applications, due by late May, will be particularly critical in shaping the future of crypto ETFs.

Conclusion

The decision by ARK Invest and 21Shares to remove the staking feature from their Ethereum ETF proposal highlights the evolving regulatory dynamics in the cryptocurrency market. As they adapt to meet SEC requirements, the success of these and other ETF proposals will play a crucial role in determining the trajectory of institutional investment in digital assets. The ongoing developments in crypto regulation and market innovation continue to shape the landscape, promising both challenges and opportunities for investors and industry participants alike.