The Legislative Move
On May 21, 2024, Fidelity Investments filed an amended S-1 registration statement with the U.S. Securities and Exchange Commission, removing all language related to staking rewards from its prospective Ethereum exchange-traded fund. The amendment, filed just 48 hours before the SEC’s May 23 deadline for a decision on VanEck’s Ethereum ETF application, represents a strategic concession designed to clear the path for regulatory approval.
The updated filing now explicitly states: “The Trust will not stake the ether custodied at the Custodian. The Trust will not invest in derivatives.” This language replaces earlier versions that included provisions for the fund’s Ether holdings to participate in Ethereum’s proof-of-stake validation process, potentially generating additional yield for investors.
The move comes as Bloomberg analysts Eric Balchunas and James Seyffart dramatically revised their approval probability for spot Ether ETFs from 25% to 75% on May 20, sending shockwaves through the market. Ethereum’s price responded with a 20% surge over 48 hours, reaching $3,818 before settling around $3,789 at press time. Bitcoin also held firm above $70,000, reflecting broad market optimism.
Jurisdiction Context
Fidelity’s decision to remove staking from its ETF proposal is directly tied to the SEC’s enforcement posture toward staking services. In June 2023, the SEC sued Coinbase for offering staking-as-a-service, alleging that the platform’s staking program constituted an unregistered securities offering. The case remains ongoing, but the message to ETF applicants is unambiguous: any product that includes staking rewards will face additional scrutiny and likely rejection.
The SEC’s position on staking is rooted in the Howey test. When a third party stakes crypto assets on behalf of users and distributes rewards, the SEC argues that this creates an investment contract—investors delegate their assets to a common enterprise with the expectation of profit derived from the efforts of others. Even though Ethereum’s proof-of-stake mechanism is a core part of the network’s consensus, the SEC distinguishes between self-staking (which it generally does not pursue) and intermediated staking (which it considers a securities transaction).
Multiple ETF issuers have now followed Fidelity’s lead. VanEck, 21Shares, and ARK Invest have all filed amended S-1 statements removing staking provisions. The coordinated retreat suggests that the SEC has communicated its position through back channels, giving issuers a clear choice: drop staking or face rejection.
Industry Reaction
The crypto industry’s response to the staking removal has been mixed. On one hand, ETF approval—even without staking—represents a watershed moment for Ethereum’s legitimacy as an institutional asset class. The approval of spot Bitcoin ETFs in January 2024 generated over $12 billion in net inflows within months, and many analysts expect similar demand for Ethereum products.
On the other hand, the absence of staking yield fundamentally changes the value proposition of an Ethereum ETF compared to direct ETH ownership. Ethereum’s proof-of-stake system generates approximately 3-4% annual yield for validators. Investors who purchase an ETF without staking will miss out on this income stream, creating a meaningful performance drag over time. For institutional investors managing billions of dollars, a 3-4% yield differential compounds into hundreds of millions in foregone returns over a multi-year holding period.
“This is the price of admission,” said one ETF industry analyst who spoke on condition of anonymity. “The SEC is saying you can have your Ethereum ETF, but you can’t have the yield that makes Ethereum unique. It’s a compromise, and it’s one that Fidelity and others are willing to make to get the product to market.”
Compliance Hurdles
Beyond staking, Fidelity’s amended filing reveals other compliance adjustments designed to appease SEC regulators. The fund’s custody arrangements have been tightened, with explicit provisions for cold storage and multi-signature security protocols. The filing also includes enhanced risk disclosures related to Ethereum’s transition to proof-of-stake, smart contract vulnerabilities, and regulatory uncertainty surrounding the classification of ETH as a commodity or security.
The SEC’s Division of Corporation Finance has been conducting an accelerated review of Ethereum ETF applications since May 20, when reports emerged that the Commission had asked exchanges to update their 19b-4 filings—a procedural step that typically signals an imminent approval decision. The 19b-4 filings govern the exchange-listed rules under which the ETFs would trade, while the S-1 filings govern the fund’s registration and operations.
Several legal experts have noted that the SEC’s sudden shift from apparent hostility toward Ether ETFs to active engagement represents a political calculation. With the November 2024 elections approaching, the Biden administration faces pressure from both crypto advocates and traditional finance interests to provide regulatory clarity. Approving Ethereum ETFs—even with restrictions—allows the SEC to claim progress without fully embracing the crypto industry.
What’s Next
The immediate question is whether the SEC will approve spot Ether ETFs by the May 23 deadline. If approved, the products could begin trading within weeks, depending on the speed of final S-1 registration statements. Analysts at Standard Chartered have projected that Ethereum ETFs could attract $15-45 billion in net inflows during their first year, potentially driving ETH’s price to $8,000 by the end of 2024.
Longer-term, the staking question remains unresolved. Several ETF issuers have indicated that they plan to seek approval for staking features in future amendments, once the base product is established. The argument is straightforward: if Bitcoin ETFs can hold Bitcoin and generate returns through covered call strategies, Ethereum ETFs should be able to stake their holdings. Whether the SEC will accept this analogy remains to be seen.
For now, the message from Wall Street is clear: Ethereum has arrived as an institutional asset class, and the compromises required to get there are worth making. The next chapter in crypto’s integration into mainstream finance is being written in real time, and Fidelity’s willingness to drop staking suggests that the industry is learning to play the regulatory game on its own terms.
Disclaimer
This article is for informational purposes only and does not constitute financial, legal, or investment advice. Cryptocurrency investments carry significant risk, including the potential for total loss. Always conduct your own research and consult with qualified professionals before making investment decisions. Past performance is not indicative of future results.
Fidelity removing staking from the filing so close to the deadline tells you they got signaled. SEC basically said drop it and we’ll approve.
75% odds from Bloomberg jumping from 25% in 48 hours is wild. someone definitely leaked something
balchunas and seyffart dont just throw darts. their sources are close to the commission. 25% to 75% in 48h is not a hunch
balchunas specifically said his source was someone who would know the vote count. 25% to 75% jump was basically a leak with plausible deniability
Marcus W they didnt get signaled, they got told. drop staking or wait another 2 years for approval. fidelity chose the fast path
fidelity dropping staking 48h before the deadline means gensler gave them an ultimatum. no way an asset manager voluntarily removes a yield feature unless the SEC forced it
fidelity literally sprinting to remove staking language says everything. they wanted this approved more than anyone in the room
eth went from 3k to 3789 on pure ETF speculation. imagine what happens if they actually approve it lol
eth going from 3k to 3789 on pure speculation with no staking yield in the product. imagine the actual approval candle