ARK 21Shares Resubmits Ethereum ETF with Cash and Staking Options

ARK 21Shares has revised its application for a spot Ethereum exchange-traded fund (ETF) to mirror its approved spot Bitcoin (BTC) ETF, which utilizes a cash creation and redemption model. The company also plans to stake a portion of the ETF’s Ether (ETH) holdings to generate additional income.

In December, ARK 21Shares and BlackRock were among the first issuers to convert their spot Bitcoin ETFs to a cash creation and redemption model after discussions with the U.S. securities regulator. Initially, ARK 21Shares proposed an in-kind redemption model for its Ether ETF, which involves non-monetary payments such as BTC.

Under the cash creates model, ARK 21Shares will purchase an equivalent amount of Ether and deposit it into the trust’s account with the custodian. This will create shares of the spot Ether ETF.

Bloomberg ETF analyst Eric Balchunas noted that the changes, outlined in the latest S-1 amendment filed on Feb. 7, align the ETF with approved spot Bitcoin ETFs.

The firm, led by Cathie Wood, acknowledged that the cash creates model may impact arbitrage transactions by Authorized Participants, which aim to maintain a close link between the share price and Ether.

Ether staking plans in consideration for ETF issuers

In their latest S-1 filing, the ETF issuer has proposed adding a staking component to their spot Ether ETF.

ARK 21Shares has indicated that they would stake Ether from the trust’s cold vault balance and the trust would receive staking rewards, treated as income.

However, ARK 21Shares has acknowledged the potential risks associated with staking, such as the possibility of losing ETH through slashing, and the potential for staked ETH to be locked up for extended periods of time.

Finance lawyer Scott Johnsson has noted that the staking-related paragraphs are in brackets, indicating the issuer’s openness to discussing this with the regulator.

Bloomberg ETF analyst James Seyffart believes that the SEC may not allow staking as part of the spot Ether ETFs. However, he also acknowledges that only time will tell.

Recently, fellow Bloomberg ETF analyst Eric Balchunas lowered the odds of a spot Ether ETF approval in 2024 from 70% to 60% on Jan. 30.

The SEC has until May 23 to decide on VanEck’s application, May 24 for ARK 21Shares, May 30 for Hashdex, June 18 for Grayscale, and July 5 for Invesco.

Fidelity and BlackRock’s applications must be decided by Aug. 3 and Aug. 7, respectively.

However, Seyffart predicts that a decision will be made on all applicants by May 23, similar to the decision made on all spot Bitcoin ETFs on Jan. 10 by the U.S. securities regulator.