ARK Invest Proposes Boosting Ethereum ETF Returns Through Staking

On February 7, ARK Invest and 21Shares submitted an updated application for the launch of a spot Ethereum ETF. The companies proposed placing coins from the trust into staking to generate additional income.

The document stipulates the use of only cash for the creation and redemption of ETF shares, similar to how it is implemented in bitcoin-based instruments.

HERE WE GO AGAIN: ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, looks like they updated to be only cash creations and some other things that bring it in line w the recently approved spot btc etf prospectus.. pic.twitter.com/clN2oZmA6I

— Eric Balchunas (@EricBalchunas) February 7, 2024

This cash model requires issuers to sell product assets and then transfer cash to the investor. An alternative natural scheme offers the manager greater flexibility in portfolio management.

“The issuer may […] place part of the Trust’s assets through one or more reliable service providers. […] The fund will receive certain rewards for placing Ethereum, which may be considered its income. The number of coins received in this way […] can vary significantly,” the document states.

Attorney Scott Johnsson noted that the aforementioned passage was presented in square brackets. He saw this as a way to initiate a discussion on the use of staking.

For those not familiar with the curiosities of legal drafting, the implication of adding brackets around new block language like this is saying: “we’re putting this here, because we want to add it… but let’s have the conversation because this might come across as inflammatory…

— Scott Johnsson (@SGJohnsson) February 7, 2024

“They wanted to say: ‘We’re putting this here because we want to add it… but let’s continue the conversation,’” Johnsson wrote.

Will the ETF be approved in May?

SEC may approve spot Ethereum ETFs in May, as suggested by the state of the options market. This was reported to The Block by Bitfinex’s head of derivatives, Jag Kooner.

“Traders are adjusting their contracts with May 23 in mind,” Kooner told The Block.

The mentioned date represents the first final deadline for decision-making on applications for the launch of the instrument from VanEck and ARK/21Shares.

The specialist noted a significant increase in open interest (OI) in call options with expirations in March, April, and May.

“The put-call ratio is heavily skewed towards the latter at 0.31,” Kooner explained.

The expert clarified that other indicators suggest a more cautious stance among traders, which may indicate product approval not before 2025 or 2026.

“The classification of Ethereum as a security or a commodity is a major factor influencing these forecasts and the reaction of the derivatives market,” he explained.

Price Benchmarks

Kooner noted that up to February, the highest OI was concentrated in contracts with expirations in the $2400-2450 range, and the max pain price is concentrated around $2300.

For options maturing in April and beyond, the latter figure is $2400, while the highest open interest is at $2900.

According to the specialist, an anomaly is observed in March: the max pain price is near $2000, and OI is distributed between $2000 and $3000.

“Traders are speculating on short-term and long-term growth but are taking a more cautious approach in the near term. This could be heavily influenced by recent statements from the Fed that it is not considering rate cuts until May,” Kooner explained.

What Do Experts Think?

In recent months, the SEC has postponed decisions on applications for the launch of spot Ethereum ETFs from several companies, including Grayscale, BlackRock, and Invesco with Galaxy.

Some experts believe the regulator will register the products in May. Grayscale suggested the agency might make a positive decision in the summer.

In December, SEC Chairman Gary Gensler, commenting on the agency’s change of stance regarding spot bitcoin funds, cited “court decisions” as one of the reasons. Commissioner Hester Peirce expressed confidence that such processes would not be required in the case of Ethereum.

However, several analysts doubt the swift registration of spot ETH ETFs for various reasons.

Back in December, BlackRock CEO Larry Fink stated that he “sees value” in such Ethereum products, calling them a step towards tokenization.