Fidelity Seeks SEC Approval to Add Staking Rewards to FETH ETF

Fidelity moves to turn its spot Ethereum ETF into a yield-bearing product Fidelity has asked the SEC for permission to let its spot Ethereum ETF earn and distribute staking rewards. In a pre-effective amendment to its registration statement filed Aug. 11, the Boston asset manager disclosed that the Fidelity Ethereum Fund (FETH) would begin staking the ETH it holds — a change that would alter the fund’s stated objective. What would change Today, FETH tracks the Fidelity Ethereum Reference Rate (net of fees). With the proposed amendment, the fund’s performance objective would become that index plus an amount based on staking rewards, with Fidelity saying the trust is expected to outperform the index before expenses. The change would only take effect once the SEC declares the registration statement effective. How staking would work Fidelity plans to route fund ETH through custodians — including Anchorage Digital, BitGo and Fidelity Digital Assets — to one or more third‑party node operators that run validator infrastructure on Ethereum’s proof‑of‑stake network. Under normal conditions the trust could stake up to 100% of its holdings, although it would not be required to stake any minimum. Rewards, fees and distributions Staking rewards would be shared: node operators and custodians would take fees, Fidelity would charge a fee, and the trust would retain a portion of the yield for investors. If approved, FETH would convert staked ETH into dollars and make quarterly cash distributions to shareholders of record. Fidelity expects those rewards to be treated as income for tax purposes but stresses that distributions are not guaranteed and can be suspended or discontinued at its discretion. Risks and liquidity management The filing flags the key risks of staking: slashing (penalties for misbehaving validators) and potential lockups during unstaking, which can create liquidity constraints. To manage this, the fund says it may extend redemption timelines if necessary. Context in the ETF race Fidelity would not be the first U.S. issuer to route ETH staking rewards to ETF investors: Grayscale paved the way, and the SEC has acknowledged BlackRock’s similar proposal for its ETHA fund. These moves follow a Treasury and IRS safe harbor that has eased tax and regulatory uncertainty for staking yields. When the SEC approved spot Ethereum ETFs in 2024, the products specifically excluded staking — a limitation that issuers and investors have increasingly sought to address. Fund background and costs FETH launched with the first U.S. spot Ethereum ETFs in 2024 and currently charges a 0.25% management fee. The staking amendment becomes operative only after SEC effectiveness.