In a recent strategic move, ARK 21Shares has revamped its Ethereum ETF proposal, mirroring its Bitcoin ETF’s cash creation model and introducing a potential staking plan to boost income.

Strategic Shift to Cash Creation

Following in the footsteps of its Bitcoin ETF, ARK 21Shares has filed an amendment for its Ethereum exchange-traded fund (ETF) application on February 7, transitioning to a cash-creation model. This change reflects a significant pivot from the previous in-kind redemption model, and aligns with the United States securities regulator’s preferences, as seen in the Bitcoin ETF approvals.

Staking Plan for Additional Income

With an eye on generating extra revenue, ARK 21Shares is looking to potentially stake a portion of the Ether held by the ETF. This would allow the fund to earn staking rewards, although it comes with certain risks such as the possibility of Ether losses and the need for staked Ether to be locked up for certain periods.

Market and Regulatory Implications

The adoption of a cash creation model may influence arbitrage activities by Authorized Participants, which are essential for keeping the ETF’s share price closely tied to Ether’s market value. Additionally, the staking proposition introduces a new layer of complexity, balancing between leveraging staking’s income potential and navigating associated risks and regulatory concerns.

Industry Observers Weigh In

Experts like Bloomberg Intelligence’s Eric Balchunas have noted the alignment with the spot BTC ETF prospectus, while finance lawyer Scott Johnsson has highlighted the tentative nature of the staking proposal. James Seyffart, another ETF analyst, remains skeptical of the SEC’s approval for the staking component within the ETF.

Looking Ahead

The SEC is set to make decisions on various spot Ether ETF applications, including ARK 21Shares, with deadlines from May to August 2024. However, some analysts expect a collective decision by May 23, similar to the approach taken for Bitcoin ETFs. The amendment to the ETF application has not only stirred regulatory and innovation discussions but also impacted Ether’s market price, prompting a significant increase.