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Ark Invest Wants To Add Staking To Its Spot ETH ETF: Will The SEC Approve?

SEC Reportedly Preparing to Allow Ethereum ETFs, but ETH Flash Crashes

Cathie Wood’s asset manager Ark Invest is looking to incorporate staking into its proposed Ethereum Spot ETF, which could have a significant impact on how the product is assessed by Wall Street.

In an amended S-1 application form filed on Wednesday, Ark included a detailed section about the Ethereum network and its decentralization, specifically highlighting its use of a proof-of-stake consensus mechanism.

The firm mentioned its own participation in consensus, stating, “The Sponsor may, from time to time, stake a portion of the Trust’s assets through one or more trusted third-party staking providers (“Staking Providers”).”

Staking In A Spot ETH ETF

Ark stated that it plans to stake Ether from its cold vault balance held by Coinbase. Staking rewards would vary based on network conditions and would be reportable to shareholders as taxable income.

Ark’s proposal introduces a new value proposition for crypto ETFs, as it goes beyond providing accurate price exposure to an underlying crypto asset (Bitcoin, Ether, etc).

The Ethereum community has shown excitement over the potential of staking by Ethereum ETF providers for months.

“All the TradFi people are going to absolutely salivate over the real yield that a staked spot ETH ETF can offer,” wrote sassal.eth to X in November. “You don’t own enough ETH.”

When speaking to CryptoPotato, Bitwise analyst Juan Leon claimed that staking is a unique value proposition that captures the interest of some financial advisors in Ether over assets like BTC.

Risks With Ark’s Staking ETF

However, adding staking to an ETF comes with its own set of risks. Ark noted in its disclosures that the fund could potentially lose Ether due to slashing in the unlikely event that staking providers engage in malicious behavior.

The fund could also face liquidity issues due to the time it takes to unstake the fund’s assets, which could range from “hours, weeks, or months to complete.”

Regulatory risk is another concern, as the SEC has not given a clear verdict on whether it believes Ether classifies as an unregistered security. The staking process is also in a regulatory grey area, as evidenced by the SEC’s lawsuit against Coinbase for failing to register its staking as a service product with the agency.