The addition of staking into spot Ethereum (ETH) exchange-traded fund (ETF) applications is a crucial milestone, according to an executive at the European investment firm ETC Group.
The Ethereum staking aspect is important in the context of ETFs because it’s associated with the “difference between giving investors the price return or the total return of the asset,” ETC Group’s head of product Chanchal Samadder told Cointelegraph.
According to Samadder, Ethereum’s proof-of-stake (PoS) mechanism and related network rewards make it conceptually very similar to dividends in equities. “But only shareholders who exercise their voting right are eligible to receive ‘dividends,’” the exec noted, adding:
Despite ETC Group’s optimism about the staking addition, the approval of potential spot Ethereum ETFs by the Securities and Exchange Commission (SEC) remains uncertain, according to Samadder.
That is because taking products is associated with a high level of new risks and difficulty and requires enough knowledge about the Ethereum blockchain, he said.
“If issuers lack deep familiarity with the technical aspects of the Ethereum protocol and do not have expertise in exchange-traded products (ETPs), it could potentially harm investor outcomes,” Samadder said.
Spot Ethereum ETF filers have been rushing to amend their SEC applications to add staking recently.
Financial services giant Fidelity filed a 19b-4 amendment with the SEC on March 18, seeking permission to stake a portion of the Ether ETH.
If approved, Fidelity’s spot ETF would stake an undisclosed amount of its assets through one or more trusted staking providers.
Related: 3 theories why the SEC may be eyeing down Ethereum: Crypto lawyer
Grayscale Investments, the operator of the largest spot Bitcoin (BTC) ETF by assets, proposed the addition of staking in its spot Ethereum ETF application on March 20.
In a preliminary proxy statement with the SEC, Grayscale mentioned the ability of the fund to stake ETH through the trust in a PoS validation protocol among the four total proposed items.
Samadder speculated that spot Ether ETF applicants didn’t add staking into their applications before due to staking complexity as well as too high tech and analysis requirements from the SEC.
“It is very complex to structure a product and requires an extremely deep knowledge of Ethereum protocol, the mechanics of ETPs and the bridge between crypto and traditional capital market — this takes time.”
He also suggested that there may have been a feeling that the SEC simply “wasn’t ready to properly analyze the risks associated with staking.”