In its latest filing with the U.S. SEC, Grayscale highlighted the potential benefits of allowing Ethereum in its trust to be staked. The firm, renowned for its cryptocurrency investment products, aims to convert its Grayscale Ethereum Trust (ETHE) into an Ethereum (ETH) spot ETF after successfully converting its Grayscale Bitcoin Trust in January.

Grayscale proposed four key changes in a preliminary proxy statement to facilitate this transformation:

  • Utilizing ETH backing shares for staking through a Proof-of-Stake protocol
  • Granting authorized participants the ability to create and redeem shares
  • Transitioning to a daily fee assessment model from the current monthly scheme
  • Introducing a third-party custodian with an omnibus account to handle shares

Omnibus accounts combine funds for trading on behalf of multiple clients, ensuring the anonymity of individual investors. Grayscale Ethereum Trust is the world’s largest investment vehicle for Ethereum based on AUM as of 3/18/2024.

Grayscale CEO Michael Sonnenshein expressed optimism about the proposed changes, highlighting the potential to streamline and enhance the experience for ETHE shareholders. This move aligns with a broader trend in the industry, evidenced by a similar submission from Fidelity Investments, indicating growing interest in Ethereum ETFs with staking features.

Fidelity’s filing mentioned that in exchange for staking activities, the Fund would receive network rewards in ether tokens, possibly treated as income for services rendered. However, the approval of spot Ether ETFs by the SEC remains uncertain.

Bloomberg analysts have expressed skepticism, suggesting the SEC may reject all pending applications due to its nuanced approach to digital assets. Bitcoin is currently classified as a commodity, leaving Ethereum’s regulatory status unclear.

The cryptocurrency community anticipates that approval of Ethereum ETFs could lead to positive market dynamics similar to those seen with Bitcoin ETFs, despite ongoing regulatory challenges.

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