ARK revises Ethereum spot ETF application, pivots to cash redemption model, collateral yield under discussion with SEC

Following the approval path of a Bitcoin spot ETF, ARK Invest and 21Shares recently revised their S-1 documents to switch to a cash redemption model.

ETF Infographic | What are the differences between the SEC-preferred ETF cash model and the Bitwise Bitcoin physical ETF?

ARK 21Shares Ethereum Spot ETF Shifts to Cash Mode

According to official documents, ARK Invest and 21Shares have amended their application to the SEC for an Ethereum spot ETF, changing it from physical redemption to cash mode.

Bloomberg ETF analyst Eric Balchunas pointed out that ARK submitted an S-1 amendment on February 7, aligning its application specifications with the previously approved Bitcoin spot ETF.

HERE WE GO AGAIN: ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, looks like they updated to be only cash creations and some other things that bring it in line w the recently approved spot btc etf prospectus.. pic.twitter.com/clN2oZmA6I

— Eric Balchunas (@EricBalchunas) February 7, 2024

Staking Functionality May Be Introduced in Ethereum Spot ETF

ARK and 21Shares also mentioned staking rewards for Ether in the document:

The issuer may periodically stake a portion of the trust's assets through one or more trusted third-party staking service providers. The issuer typically intends to stake Ether held in the trust's cold wallets. In consideration for potentially participating in any staking activities, the trust may receive certain staking rewards in Ether, which may be treated as income of the trust. Staking activities also come with the risk of loss of Ether, including penalty mechanisms. Additionally, as part of the Ethereum staking and unstaking process, any staked Ether may be inaccessible for a period of time, leading the issuer to manage certain liquidity risks.

Scott Johnsson, Partner at Van Buren Capital, noted that ARK specifically bracketed the staking segment in the description, which typically indicates that the applicant hopes this aspect will be approved and is willing to engage in dialogue with regulatory bodies on this matter.

Bloomberg ETF analyst James Seyffart believes that, in essence, the SEC is unlikely to allow the introduction of staking functionality in Ethereum spot ETFs.

Less Optimistic Outlook for Ethereum Spot ETF?

Previously, Bloomberg ETF analyst James Seyffart told Blockworks on January 26 that he believes there is about a 60% chance the SEC will approve all Ethereum spot ETFs by May this year; otherwise, if it doesn't happen by May 23, he thinks it may have to wait until 2025.

The SEC review dates for various issuers' Ethereum spot ETFs are as follows:

• May 23: VanEck

• May 24: ARK 21Shares

• May 30: Hashdex

• June 18: Grayscale

• July 5: Invesco

• August 3: Fidelity

• August 7: BlackRock

However, James Seyffart expects the SEC to review all applications by May 23, similar to approving all Bitcoin spot ETFs on January 10 this year.