Fidelity Investments has recently filed an updated S-1 application with the U.S. Securities and Exchange Commission (SEC) to introduce a spot Ethereum ETF, marking a significant change in their investment product. This update comes amidst a surge in the crypto market as investors anticipate approval for the ETF this week.
The asset management giant has made it clear in their latest filing that the Ethereum (ETH) tokens supporting the ETF will not be staked. S-1 filings are typically required for companies looking to introduce publicly traded securities in the U.S. market.
There seems to be a shift in the U.S. regulatory landscape as recent developments indicate a potential change. The SEC, which has traditionally been cautious about cryptocurrencies, appears to be reevaluating its stance, possibly influenced by political dynamics. This change is evidenced by a new requirement for ETF issuers to update their 19b-4 filings, which is a precursor to obtaining final approval.
Bloomberg’s senior ETF analyst, Eric Balchunas, suggests that the outlook is now more positive, increasing the odds of approval from 25% to a more optimistic 75%. However, the journey to approval is not solely reliant on 19b-4 forms; obtaining S-1 approval remains a challenge. According to James Seyffart, another Bloomberg ETF analyst, it could take weeks or even months to receive S-1 approvals.
In the updated S-1 filing, Fidelity has withdrawn its initial plans to stake Ether holdings within the ETF. Previous filings hinted at a strategy to involve “one or more” infrastructure providers in staking a portion of the trust’s assets. The revised filing clearly indicates a shift away from these plans, emphasizing a non-staking approach for the custody of Ether.
This decision aligns with the cautious approach observed across the network, as Fidelity acknowledges Ethereum’s inherent vulnerabilities. The risks associated with a “51% attack,” where control over the majority of staked Ethereum could lead to significant security breaches, remain a concern.
Fidelity’s filing highlights that currently, the three largest staking pools control nearly half of the staked Ethereum, posing a substantial risk of network manipulation. Validators on the Ethereum network face penalties for non-compliance with network protocols, including reduced staked amounts or being forcibly ejected from the network with a loss of their stakes.
Fidelity’s revamped mechanisms aim to enhance network integrity and reduce risks such as double-spending. By refraining from staking, the company aims to mitigate these security risks and provide a safer framework for investors. This approach also simplifies the fund’s structure, potentially facilitating the regulatory approval process.
