Fidelity moves to add staking and payouts to FETH

TL;DR:

• Fidelity filed an amendment with the SEC to add Ethereum staking to its FETH fund, which manages $898 million in net assets.
• The fund could stake up to 100% of its ETH under normal conditions and would retain 85% of the gross rewards generated.
• Cash payments would be distributed quarterly; Blockdaemon, Figment, and Galaxy would operate as the fund’s validator nodes.

Fidelity filed an amendment to the registration statement of Fidelity Ethereum Fund (FETH) with the U.S. Securities and Exchange Commission (SEC), with the goal of incorporating ETH staking and quarterly cash distributions into the fund, which currently manages $898 million in net assets.

According to the document, the fund could stake up to 100% of its ETH under normal operating conditions, with no minimum requirement established. The asset manager would adjust participation levels based on liquidity needs, network conditions, and redemption requests. The fund would reserve a portion of ETH to cover redemptions, expenses, distributions, and other liquidity obligations.

Fidelity Follows the Staking Trend

The proposal follows the publication of a safe harbor bulletin by the Internal Revenue Service (IRS) that allows qualified digital asset trusts to participate in staking without losing their tax status as grantor trusts. With this amendment, Fidelity would join Grayscale and 21Shares, which already offer staking in their Ethereum funds. BlackRock took a different path and launched a standalone staking product.

The reward-sharing structure contemplates that the fund retain 85% of gross returns, while the remaining 15% would be distributed among the fund sponsor, custodians, and node operators. The document identifies Blockdaemon, Figment, and Galaxy Digital Trading Cayman as the selected node operators.

Quarterly Distributions

Net staking rewards would first cover fund expenses and then be directed toward quarterly cash distributions to shareholders. The amounts to be distributed will depend on staking performance, validator results, network rules, and outstanding obligations. Fidelity clarified that it does not guarantee a distribution every quarter and that the fund could retain rewards when its obligations exceed available income.

The asset manager also warned about the operational and liquidity risks associated with staking, given that validator exits can be delayed during periods of high network demand. The fund would implement daily liquidity monitoring and internal controls to manage custody, slashing, and liquidation risks.