Fidelity is driving structural changes to its Fidelity Ethereum Fund (FETH). The company disclosed that the $898 million Ethereum fund plans to add ETH staking functionality and intends to make quarterly cash distributions to investors under normal circumstances.
You can stake up to your entire position.
According to the filing submitted to the U.S. Securities and Exchange Commission on August 11, staking will commence as soon as practicable after FETH becomes effective. The fund is not required to set a minimum staking ratio and, under normal circumstances, may allocate up to 100% of its ETH to validator nodes.
However, the fund will retain a portion of ETH for redemptions, expense payments, cash distributions, and liquidity management. The document defines “normal circumstances” as conditions in which the Ethereum network is not experiencing significant disruptions, redemption requests are within expected ranges, and no additional events require the fund to hold more unstaked ETH.
The custodian will collaborate with selected node operators to complete staking, while retaining control of the private keys; the node operators are responsible for validating the node infrastructure. Fidelity’s listed prospective node operators include Blockdaemon, Figment, and Galaxy Digital Trading Cayman.
Staking rewards will be distributed in cash on a quarterly basis.
Fidelity plans to convert staking rewards into quarterly cash distributions, but the specific amounts are not fixed. The distribution levels will depend on Ethereum staking yields, validator performance, network rules, fees, fund expenses, and slashing.
If the fund's liabilities exceed the staking rewards received, the associated earnings may be retained to cover the fund's obligations rather than being distributed immediately. The record date and payment date will be determined by the initiator in accordance with the exchange's rules.
This approach is similar to the structure Grayscale previously used, where it sold staking rewards and distributed proceeds to holders in cash rather than directly distributing ETH. BlackRock, however, has chosen to launch a separate staking product rather than adding staking functionality directly to its existing spot Ethereum fund.
Tax arrangements and redemption risks proceed concurrently.
Fidelity's design for this offering is partially based on the tax guidance issued by the U.S. Department of the Treasury and the Internal Revenue Service in November 2025. This guidance provides a safe harbor for qualified investment trusts holding digital assets to participate in staking, provided the relevant products meet established criteria and maintain their existing tax classification.
Fidelity stated that FETH’s staking and liquidity operations will be conducted under this safe harbor arrangement. The fund’s investment objective will also be adjusted to track the performance of ETH as reflected by the Fidelity Ethereum Reference Rate, plus returns associated with staking rewards, net of fees and liabilities.
The document also notes that staked ETH may introduce redemption timing risk. To address this, the fund will maintain readily accessible assets and establish a daily monitoring mechanism, reviewed annually by the Liquidity Risk Management Committee.
Fidelity's potential sources of liquidity include credit facilities, transferring validator node positions to third parties, delayed settlement agreements, and the use of liquid staking tokens, to the extent permitted by regulators. As of the date of the prospectus, FETH had not established any credit facility.
If the unstaked ETH is insufficient to complete the redemption on time, the fund may extend the settlement period to wait for the relevant ETH to exit the validator nodes; if physical redemption still cannot be completed within a reasonable extended period, the initiator may pay part or all of the redemption amount in cash based on the ETH index price on the order date.
Additional information: The document also lists forfeiture as one of the primary risks. The amount of ETH held by the fund may decrease due to validator node failures, protocol errors, cybersecurity incidents involving custodians or node operators, or operational mistakes during reward transfers.