Fidelity Moves to Add Ethereum Staking Rewards to Its Spot ETF

Fidelity Pursues Ethereum Staking in Spot ETF

Fidelity has taken steps to enhance its Ethereum ETF offering by requesting permission to stake the cryptocurrency held within the fund. On August 11, the Boston-based asset manager filed a pre-effective amendment to its registration statement for the Fidelity Ethereum Fund (FETH), seeking to introduce staking capabilities that would generate yield for investors. The proposed change would fundamentally alter the fund’s investment objective, transforming it from a simple index tracker into a product that generates additional returns through network participation.

Under the proposal, Fidelity would be permitted to stake up to 100% of the Ethereum in the fund’s portfolio, though no minimum staking requirement would apply. The staking infrastructure would involve routing assets through established custodians—Anchorage Digital, BitGo, and Fidelity Digital Assets—to professional node operators who manage the validation infrastructure. Any rewards generated would be distributed to shareholders as quarterly cash payments, subject to SEC approval of the amendment.

How the Yield Structure Works

The mechanics of the fund’s staking rewards involve a split among multiple parties. Node operators, custodians, and Fidelity itself would share in the rewards generated through staking, with the fund retaining a portion for its own benefit. Shareholders would receive their distributions as cash rather than additional Ethereum, with the firm converting staked rewards to dollars before making quarterly payouts. Fidelity has indicated that these distributions would likely be treated as income for tax reporting purposes.

However, the fund’s prospectus includes important caveats. Rewards are not guaranteed, and Fidelity maintains discretion to suspend or terminate distributions at any time. Additionally, staked Ethereum carries inherent risks, including slashing penalties for validator misbehavior and potential lockup periods during unstaking, which could create temporary liquidity constraints. Fidelity has signaled it would manage these risks by potentially extending redemption timelines when necessary.

Part of a Broader Institutional Trend

Fidelity’s initiative follows moves by competitors to tap into Ethereum’s yield potential. Grayscale already became the first U.S. ETF issuer to distribute ETH staking rewards to investors, while the SEC has acknowledged BlackRock’s similar proposal for its ETHA fund. These developments became possible after the Treasury Department and IRS established a safe harbor framework, removing regulatory uncertainty around staking yield for crypto trusts.

Notably, when the SEC initially approved spot Ethereum ETFs in 2024—including Fidelity’s own FETH—the products were restricted from offering staking rewards. The absence of yield generation has been cited as a competitive disadvantage relative to other Ethereum holding vehicles. FETH currently charges a management fee of 0.25%, and the staking enhancement would become effective only upon SEC approval of the registration amendment.

Source: Fidelity, via Decrypt. Not financial advice.