Cathie Wood’s asset manager Ark Invest wants to bake staking into its proposed Ethereum Spot ETF – a feature that could revolutionize how the product is evaluated by Wall Street.
In an amended S-1 application form filed on Wednesday, Ark included a lengthy passage about what the Ethereum network is and how it stays decentralization, highlighting its use of a proof-of-stake consensus mechanism.
That’s where the firm slipped in a passage about its own participation in consensus. It wrote:
“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”).”
Ark said it expects to stake Ether from its cold vault balance, as held by Coinbase. Staking rewards would vary widely based on network conditions, and would be reportable to shareholders as taxable income.
Ark’s proposal adds a juicy new value proposition for crypto ETFs, which until now were thought of solely as a vehicle to gain accurate price exposure to an underlying crypto asset (Bitcoin, Ether, etc).
The Ethereum community has already 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.”
Indeed, when speaking to CryptoPotato at the time, Bitwise analyst Juan Leon claimed that staking is a unique value proposition that piques the interest of some financial advisors in Ether, over assets like BTC.
Nevertheless, adding staking to an ETF isn’t without its 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 be anywhere from “hours, weeks, or months to complete.”
Worst of all could be regulatory risk. the Securities and Exchange Commission (SEC) was already deeply reluctant to approve Bitcoin spot ETFs before being challenged to do so in court. Unlike Bitcoin, 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. In June, the SEC sued Coinbase for failing to register its staking as a service product with the agency.