Fidelity Investments has submitted an updated S-1 application to the U.S. Securities and Exchange Commission (SEC) for the launch of an Ethereum exchange-traded fund (ETF). This signals a significant change in the investment product and comes at a time when the crypto market is experiencing a surge in anticipation of approval.
The latest filing by the asset management giant makes it clear that the Ethereum tokens underlying the ETF will not be staked. S-1 filings are typically required for firms looking to introduce publicly traded securities in the U.S. market.
There has been a noticeable shift in regulatory perception in the U.S. Recent developments indicate that the SEC, which has historically been cautious about cryptocurrencies, is reevaluating its stance, possibly influenced by political factors. This change is reflected in a new requirement for ETF issuers to update their 19b-4 filings, which is a precursor to final approval.
Bloomberg’s senior ETF analyst, Eric Balchunas, suggests that the outlook for approval has become more positive, increasing the odds from 25% to an optimistic 75%. However, the approval process is not solely dependent on 19b-4 forms; obtaining S-1 approval remains a challenge. James Seyffart, another Bloomberg ETF analyst, explains that S-1 approvals could take weeks or even months to be granted.
In the updated S-1 filing, Fidelity has decided to withdraw its initial plans to stake Ether holdings within the ETF. Previous filings hinted at a strategy involving infrastructure providers to stake a portion of the trust’s assets. The revised filing now emphasizes a non-staking approach, citing concerns about Ethereum’s inherent vulnerabilities.
Fidelity points out the risks associated with a “51% attack,” where control over the majority of staked Ethereum could lead to major security breaches. The filing highlights that the three largest staking pools currently control almost half of the Ethereum staked, posing a significant risk of network manipulation. Validators on the Ethereum network face penalties for non-compliance with network protocols, including reduced staked amounts and being forcibly ejected from the network with the loss of their stakes.
Fidelity’s updated approach aims to enhance network integrity and reduce risks such as double-spending. By refraining from staking, the company seeks to mitigate these security concerns and provide a safer framework for investors. This strategy also simplifies the fund’s structure, potentially facilitating the regulatory approval process.
