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ARK 21Shares Updates Spot Ethereum ETF

Ethereum ETF

ARK 21Shares is updating its spot Ethereum ETF by adding staking and using a cash creation model for rebalancing. These changes are proposed to make it more similar to ARK 21Shares’ spot Bitcoin ETF.

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Changes to the Spot Ethereum ETF

  • The spot Ethereum ETF (exchange-traded fund) application will be changed to adopt a cash creation model similar to the approved spot Bitcoin ETF.
  • ARK 21Shares also plans to generate additional income by staking a portion of the ETF’s Ether holdings.
  • In December 2023, ARK 21Shares and BlackRock were among the first issuers to convert their spot Bitcoin ETFs.
  • These changes were due to the shift of Bitcoin ETFs to a cash creation and redemption model following meetings with the U.S. Securities and Exchange Commission (SEC).
  • ARK 21Shares initially proposed an in-kind redemption model for spot Ether.

Cash Creation Model

  • ARK 21Shares will now purchase Ether equivalent to the order amount and deposit the acquired Ether into the trust’s account with the custodian.
  • Shares of the spot Ether ETF will then be created.
  • Bloomberg ETF analyst Eric Balchunas stated that with the details provided in the latest Form S-1 amendment filed on February 7th, ARK 21Shares is now “aligned” with the approved spot Bitcoin ETFs.

Staking

  • The Cathie Wood-led firm acknowledges that the cash creation model could negatively impact arbitrage opportunities for authorized participants and aims to keep the share price closely linked to Ether.

  • The firm’s latest S-1 filing also proposes adding a staking component to the spot Ether ETF.
  • “The Sponsor may from time to time stake a portion of the Trust’s assets through one or more qualified third-party staking service providers.”
  • ARK 21Shares plans to stake Ether from the trust’s cold wallet balance, which would allow the trust to earn staking rewards that are considered income.

Risks of Staking

  • ARK 21Shares acknowledges that staking activities carry risks such as the slashing of ETH and that staked ETH may be locked up for extended periods in some cases.

SEC’s Decision on Spot Ethereum ETF

  • Bloomberg ETF analyst James Seyffart stated that the SEC’s base case is that it will not allow staking for spot Ether ETFs.
  • However, he added that this could become clearer over time.
  • According to Seyffart, the probability of spot Ether ETF approval has recently decreased from 70% to 60%.
  • This was highlighted by a statement made by Bloomberg ETF analyst Eric Balchunas on January 30th.
  • The SEC has until May 23rd to decide on the applications of filers like VanEck, ARK 21Shares, Hashdex, Grayscale, and Invesco.
  • Fidelity and BlackRock have deadlines of August 3rd and 7th, respectively, for their applications to be decided upon.

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