Fidelity Revamps S-1 Application for Spot Ethereum ETF
Fidelity Investments has updated their S-1 application with the U.S. Securities and Exchange Commission (SEC) to launch a spot Ethereum ETF, highlighting a significant change in the investment product. The update comes on the heels of the crypto market surging in anticipation of an approval this week.
Also Read: Ethereum Targets $4,000 as Odds of Spot Ether ETF Improve
The asset management giant has made one thing very clear in the latest filing. The Ethereum (ETH) tokens underpinning the ETF will not be staked. Traditionally, S-1 filings are essential for firms intending to introduce publicly traded securities in the U.S. market.
There Has Been a Change in Regulatory Perception
Recent developments indicate a potential change in the U.S. regulatory environment. The SEC, which has historically been hesitant about cryptos in general, appears to be reassessing its position, possibly influenced by political dynamics. This change is seen in a new requirement for ETF issuers to update their 19b-4 filings, a precursor to gaining final approval.
For anyone wondering why our odds were low up until yesterday, see below. This was a shock, a "holy sht" moment yesterday even for ppl inside the process. That said, props to @JSeyff for convincing me to stick with a 25% floor (as I wanted to go lower that's how deafening the… https://t.co/d9Xjt3nurN
— Eric Balchunas (@EricBalchunas) May 21, 2024
Bloomberg’s senior ETF analyst, Eric Balchunas, suggests a brighter outlook, bumping up the odds of approval from a mere 25% to an optimistic 75%. However, the journey is not solely dependent on 19b-4 forms; securing S-1 approval remains an issue still. According to James Seyffart, another Bloomberg ETF analyst, S-1 approvals could take weeks or months to be given.
Fidelity Has Withdrawn From Staking Plans
Meanwhile, in the updated S-1 filing, Fidelity has withdrawn its initial plans to stake Ether holdings within the ETF. Previous filings hinted at a strategy to engage “one or more” infrastructure providers to stake a portion of the trust’s assets. The revised filing shows a clear move away from these plans, emphasizing a non-staking approach in the custody of Ether.
Also Read: Grayscale Holds Discounted ETH Tokens
“A portion of the Ether is held in hot storage, which requires private keys to be held online. Fidelity is solely responsible for managing the allocation of Ether in hot and cold storage and does not publicly disclose what percentage is held in cold storage. The Trust performs regular diligence of operational practices of the Custodian, including practices related to the allocation of assets held in cold or hot storage.”
Fidelity
This strategy aligns with a widespread caution observed across the network, said Fidelity, given Ethereum’s inherent vulnerabilities. Notably, the network risks associated with the ‘51% attack,’ where control over the majority of staked Ethereum could lead to major security breaches, remain a concern.
Fidelity Is Concerned About Ethereum’s Security
Fidelity’s filing highlighted that currently, the three largest staking pools nearly control half of the Ethereum staked, presenting a huge risk of network manipulation. Validators on the Ethereum network face various penalties for non-compliance with network protocols, ranging from reduced staked amounts to being ‘slashed’—forcibly ejected from the network with continued loss of their stakes.
“Many digital asset networks have been subjected to a number of denial of service attacks, which has led to temporary delays in block creation and in the transfer of Ethereum. Any similar attacks on the Ethereum network that impact the ability to transfer ether could have a material adverse effect on the price of ether and the value of the Shares.”
Fidelity
Fidelity’s revamped mechanisms aim to boost network integrity and reduce risks such as double-spending. By refraining from staking, the company aims to mitigate these security risks, providing a safer framework for investors. This approach also simplifies the fund’s structure, potentially easing the regulatory approval process.
Cryptopolitan reporting by Jai Hamid
