Staking rewards could create a taxable event for shareholders and introduce new risks associated with the fund.
Fidelity filed an S-1 application with the United States Securities and Exchange Commission (SEC) on March 27 to create a spot Ether (ETH) exchange-traded fund (ETF). As expected from an earlier filing, the ETF will give Fidelity the option to stake part of the ETH it holds.
The asset management giant’s ETF would trade on the Cboe BZX Exchange. Fidelity Digital Asset Services, which affiliated with sponsor FD Funds Management, would serve as custodian of the trust’s ETH. According to the S-1:
That decision entails additional risk, the application noted. There would be a risk of loss “including in the form of ‘slashing’ penalties” and liquidity risks while the stake is being processed. In addition, staking rewards would be treated as income for the fund for tax purposes, as a result of which investors will experience a taxable event “without an associated distribution from the Trust.”
