Ark Invest, led by Cathie Wood, is exploring the inclusion of staking in its proposed Ethereum Spot ETF, potentially reshaping how such products are perceived in the financial world.
In an amended S-1 filing submitted on Wednesday, Ark detailed Ethereum’s decentralized nature, emphasizing its proof-of-stake consensus mechanism.
Within this update, Ark hinted at its intention to engage in staking through trusted third-party providers, a move aimed at enhancing the fund’s performance.
Staking in an ETF Context
Ark plans to stake Ether from its cold vault held by Coinbase, with staking rewards subject to network conditions and reported as taxable income to shareholders.
This move introduces a compelling proposition for crypto ETFs, traditionally seen as instruments for gaining exposure to underlying crypto assets’ prices.
The Ethereum community has long anticipated staking integration by ETF providers, recognizing the potential for real yield generation.
Analysts believe that staking could differentiate Ethereum as an investment option, attracting interest from financial advisors and investors.
Risks Associated with Ark’s Staking ETF
However, incorporating staking into an ETF entails risks. Ark acknowledges the possibility of losing Ether through slashing if staking providers engage in malicious behavior.
Moreover, liquidity issues may arise due to the time required to unstake the fund’s assets, potentially taking hours, weeks, or even months.
Regulatory uncertainty poses another challenge, especially as the SEC has yet to clarify Ethereum’s classification as an unregistered security.
The staking process itself navigates a regulatory grey area, highlighted by the SEC’s lawsuit against Coinbase for failing to register its staking services.
Despite the potential benefits, Ark’s move underscores the complex regulatory landscape surrounding crypto ETFs and staking activities, necessitating careful consideration and risk assessment.