21Shares ARK Revamps Ethereum ETF Application, Proposes Ether Staking
Summary:
21Shares ARK has revised its spot Ethereum ETF application, adopting a cash-creation model similar to its approved spot Bitcoin ETF. The company has also proposed staking a part of the ETF's Ether for additional revenue. The revision includes risks associated with potential Ether losses and lock-up periods during staking. Bloomberg ETF analysts predict that the SEC may not allow staking in spot Ether ETFs, with decisions on various applications expected by May 23.
21Shares ARK has revised its spot Ethereum exchange-traded fund (ETF) request, switching to a cash-creation model in much the same way as its approved spot Bitcoin (BTC) ETF. It has also introduced a plan to stake a portion of the ETF’s Ether (ETH) to generate more revenue. In December, both 21Shares ARK and BlackRock were among the pioneering issuers to switch their spot Bitcoin ETFs to a cash creation and redemption model, following discussions with the US securities regulator. This was a shift from 21Shares ARK's previous proposal of an in-kind redemption model for its Ether ETF, which suggested non-cash payments such as BTC. In the cash creates model, 21Shares ARK would acquire Ether equivalent to the order amount and place the equivalent Ether in the trust’s custodial account, leading to the creation of spot Ether ETF shares. The alterations, outlined in the latest S-1 amendment submitted on Feb. 7, now makes it consistent with approved spot Bitcoin ETFs according to Bloomberg ETF analyst Eric Balchunas.
However, the company, directed by Cathie Wood, had to admit that the cash creates model could negatively impact the arbitrage transactions by Authorized Participants designed to keep the share price linked closely with Ether. The most recent S-1 filing also proposed the addition of a staking feature to its spot Ether ETF. 21Shares ARK noted that the trust's Ether from its cold vault balance would be staked and the trust would receive staking rewards as income. The company admitted the involvement of risks in staking, such as potential Ether losses and extended lock-up periods for staked Ether. Financial lawyer Scott Johnsson saw the staking-related information contained in brackets, and interpreted this to mean the applicant would prefer to include it and is open to discussing it with the regulating authority.
James Seyffart, Bloomberg ETF analyst, expressed his primary belief that the SEC will not allow staking as a part of spot Ether ETFs but conceded that only time would reveal the truth. Seyffart and fellow Bloomberg ETF analyst Eric Balchunas recently reduced the possibility of a 2024 spot Ether ETF approval from 70% to 60% on Jan. 30. The SEC must make decisions on applications from VanEck by May 23, 21Shares ARK by May 24, Hashdex by May 30, Grayscale by June 18, Invesco by July 5, and Fidelity and BlackRock by Aug. 3 and 7. Notwithstanding, Seyffart predicts decisions on all applications by May 23 — aligning with how the U.S. securities regulator made decisions on all spot Bitcoin ETFs on Jan. 10.
Published At
2/8/2024 7:25:14 AM
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