By
Godfrey Benjamin
April 26th, 2024
The ETH ETF amendment from ARK shows that there is a provision for cash creation and redemption, in addition to the possibility of staking.
ARK Invest and 21Shares have filed an amendment to their proposal for a spot Ethereum (ETH) exchange-traded fund (ETF). The amendment contains a few new provisions the issuers expect will tip the scale in their favor.
ARK and 21Shares Add Updates to ETH ETF Proposal
One of the points in the amended filing specifies that financial organizations will only access cash when redeeming shares instead of in-kind creations. The filing states:
“Authorized Participants will deliver only cash to create shares and will receive only cash when redeeming Shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive ether as part of the creation or redemption process or otherwise direct the Trust or an Ether Counterparty [in that respect].”
Reports suggest that some participants may be unable to hold or handle crypto according to current US law. This may be why the cash creations and redemptions are necessary. Nevertheless, the use of cash creations and redemptions was a key factor for spot Bitcoin ETFs. Last month, the United States Securities and Exchange Commission (SEC) asked would-be issuers to use a cash-creation model for their ETFs.
Another introduction to the proposal is staking. The filing states that 21Shares may stake some of the assets from its Cold Vault Balance and via one or more trusted third-party staking providers. The section on staking adds that there could be some reward from staking ETH, which would be considered rewards for the Trust. However, it adds that staking comes with a risk of loss.
Interestingly, the part on staking is in brackets, indicating that it could potentially not make the final proposal. Van Buren Capital GP Scott Johnsson wrote in an X post that it simply indicates uncertainty. Explaining the meaning of brackets, Johnsson noted:
“We’re putting this here, because we want to add it…but let’s have the conversation because this might come across as inflammatory and its not critical to the application.”
While Johnsson did not share his thoughts on the likelihood of staking in the final application, Bloomberg ETF analyst James Seyffart responded in a post that the SEC will not allow staking in spot ETH ETFs.
The SEC and Ethereum ETFs
Several prospective issuers have submitted applications for spot ETH ETFs to the SEC. Unfortunately, there is no indication that the SEC is ready to greenlight any of the proposals it is currently reviewing. In a January media briefing, SEC Chair Gary Gensler warned that the approval of spot Bitcoin ETFs should not be interpreted as support for any other kind of exchange-traded product. This is similar to Gensler’s comment in a press release following the approval of spot Bitcoin ETFs, that the greenlight is not an approval or endorsement of Bitcoin.
Last December, the SEC delayed a decision on Invesco and Galaxy Digital’s proposal, and is now instituting proceedings to determine the right action to take. The Commission has also delayed other applications, including Fidelity on January 18 and Blackrock on January 24. On January 25, the Commission also postponed deciding on an application from Grayscale Investments.
