Fidelity Files to Convert Ethereum ETF to Yield-Bearing Product

Fidelity has requested SEC approval to transform its spot Ethereum ETF into a yield-bearing product. The Boston asset manager submitted a pre-effective amendment to its registration statement on Aug. 11, indicating that the Fidelity Ethereum Fund (FETH) will stake its ETH holdings. This change alters the fund's objective from tracking the Fidelity Ethereum Reference Rate to including staking rewards. The filing anticipates that the trust will outperform the index before expenses. Staking involves locking up Ethereum to validate transactions and earn new tokens. Fidelity plans to route its ETH through custodians like Anchorage Digital and BitGo to node operators managing the validator infrastructure. The fund could stake up to 100% of its Ethereum but is not obligated to stake a minimum. Rewards will be divided among node operators, custodians, and Fidelity, with the trust retaining a portion. Grayscale was the first U.S. ETF issuer to provide ETH staking rewards, and BlackRock's proposal for its ETHA fund has been acknowledged by the SEC. The SEC approved spot Ethereum ETFs in 2024 without staking, which has been a drawback. If approved, FETH will make quarterly cash distributions, converting staked Ethereum into dollars for shareholders. Fidelity expects rewards to be taxable income but notes that distributions are not guaranteed and can be suspended. Staked ETH carries slashing risk and may be locked during unstaking, which the fund plans to manage by extending redemption timelines if necessary. FETH launched with the first U.S. spot Ethereum ETFs in 2024 and charges a 0.25% fee; the staking amendment takes effect upon SEC approval.

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