According to Bloomberg, the issuers of Ethereum spot ETFs, including Fidelity and Ark Investment, have made a crucial change by canceling the “staking” plan for the purchase of Ethereum (ETH) in their proposed funds. Industry experts believe that this move will benefit the Ethereum blockchain, but it will also put these anticipated ETF products at a disadvantage.
Staking has been a hot topic issue for Ethereum, as the mechanism allows holders to earn rewards, raising questions about whether this token should be considered a security and fall under U.S. regulatory oversight. Some market participants believe that if Ethereum spot ETFs do not stake their Ethereum, then these funds may be less attractive to investors compared to directly purchasing Ethereum in the cryptocurrency market, as direct holders of Ethereum can freely stake their tokens.
Brian Rudick, Senior Strategist at digital asset firm GSR, stated that the cancellation of the staking plan for ETFs is not surprising to many observers, as regulatory authorities view Ethereum’s mechanism as similar to crypto lending. He mentioned a case where the cryptocurrency exchange Kraken agreed to pay a $30 million fine to the U.S. Securities and Exchange Commission (SEC) for violating regulations related to its “staking-as-a-service” product.
Ayesha Kiani, COO of cryptocurrency hedge fund MNNC Group, indicated that staking is currently more seen as a security, as staked Ethereum provides returns, which she described as the best example of the intertwining of decentralization and SEC standards. She added that holding Ethereum without staking means holders are not helping secure the blockchain, posing a problem as it could have allowed institutions like Fidelity or VanEck to contribute to the Ethereum network.
Protecting Ethereum from prolonged institutional control
Many industry advocates believe that the cancellation of staking plans by ETF issuers is actually a net positive for the blockchain industry, as the goal of the industry is to establish a decentralized financial system rather than rely on a few intermediaries.
Leo Mizuhara, Founder of decentralized financial institution asset management company Hashnote, stated that in protocols like Ethereum, centralized forces could also be destabilizing factors when the system encounters issues, making the non-staking of such ETFs beneficial and conducive to stability.
Rudick from GSR mentioned that ETF issuers not staking Ethereum may align with Ethereum’s goals and help protect the second-largest cryptocurrency from “prolonged institutional control.”
Further regulatory clarity may lead to the implementation of ETF staking plans
Some are concerned that if Ethereum spot ETFs are approved and become as successful as Bitcoin ETFs (which have attracted about $13 billion in net inflows so far), this could lead to issuers accumulating a significant amount of Ethereum. If they do not stake this Ethereum, it could make the Ethereum network more vulnerable to attacks. Currently, around 27% of circulating Ethereum is staked according to Nansen’s data.
Nevertheless, some expect that ETF issuers will eventually receive clear approval from regulatory authorities to stake Ethereum. Ryan Watkins, Co-Founder of Syncracy Capital, expressed optimism about the SEC approving Ethereum spot ETFs due to recent regulatory developments, with the Ethereum price rebounding about 20% in the past three days.
The “final decision date” for the SEC’s review of VanEck’s Ethereum spot ETF application is set for May 23rd, as Bloomberg Senior ETF Analyst Eric Balchunas speculated that the SEC may release news about the Ethereum spot ETF around 4 PM Eastern Time on Thursday on the X platform.
Related reports: “VanEck’s Ethereum spot ETF application listed on DTCC, stock code ETHV” and “Approval of Ethereum ETF expected to drive open interest in futures to a record $14 billion.”