Fidelity Investments has submitted a pre-effective amendment to the U.S. Securities and Exchange Commission seeking permission for its Fidelity Ethereum Fund to stake the ether it holds and distribute resulting rewards to investors as quarterly cash payments.

The filing, dated August 11, covers the fund known by the ticker FETH, which held approximately $898 million in net assets. Under the proposed terms, the trust could stake as much as 100 percent of its ether during normal market conditions while retaining sufficient liquid holdings to meet redemptions, expenses, distributions and other liquidity needs. No minimum staking threshold is required.

Structure of the Staking Arrangement

Fidelity plans to begin staking as soon as practicable after the amended prospectus becomes effective. Custodians would work with selected node operators to place ether into Ethereum validators. The custodians would retain control of private keys while the operators manage the validator infrastructure that participates in the network’s proof-of-stake consensus.

Named node operators include Blockdaemon, Figment and Galaxy Digital Trading Cayman. Allocation among them would consider security practices, operating experience, technology and concentration risk. Custodians referenced in related disclosures include Anchorage Digital, BitGo and Fidelity Digital Assets.

After fees, net rewards would first cover sponsor fees, other trust expenses and liabilities. Remaining amounts would support quarterly cash distributions to shareholders of record, redemption needs or additional staking. Rewards would accumulate in ether until a record date, after which a trading counterparty would convert the relevant portion into U.S. dollars for payment.

Distributions are not guaranteed. Fidelity could suspend them if liabilities exceed received rewards, using the proceeds instead to meet obligations. The exact payout would depend on staking yields, validator performance, network conditions, fees, expenses and any slashing events.

Updated Investment Objective and Regulatory Backdrop

The amendment would revise the fund’s stated objective. FETH currently aims to track the Fidelity Ethereum Reference Rate adjusted for expenses. With staking, performance would track that rate plus an amount linked to staking rewards, with the expectation of outperforming the index before expenses.

The structure relies on tax guidance issued in November 2025. The Treasury Department and Internal Revenue Service released Revenue Procedure 2025-31, establishing a safe harbor that permits qualifying investment trusts holding digital assets to stake without jeopardizing their classification as investment trusts and grantor trusts for federal income tax purposes. Fidelity stated that FETH intends to operate its staking and liquidity activities in accordance with this safe harbor.

When the SEC approved the first spot Ethereum exchange-traded funds in 2024, those products deliberately omitted staking. The absence of yield has been viewed as a limitation. Subsequent guidance and industry filings have opened the path for rewards-bearing products.

Industry Precedents and Liquidity Considerations

Other issuers have already advanced similar features. Grayscale became the first U.S. issuer to distribute staking rewards from an Ethereum product, converting earned ether into cash payments. BlackRock launched a dedicated staked Ethereum trust rather than amending its existing spot fund. That product was designed to keep a substantial majority of its holdings staked through selected validators.

Staking introduces operational constraints. Exiting a validator and completing a withdrawal can take roughly one day under favorable conditions but may stretch to several weeks or months when activation or exit queues lengthen or network demand rises. Staked assets also face potential slashing penalties for validator misbehavior.

To address these issues, Fidelity outlined a liquidity risk management program that includes daily monitoring of available assets and annual review by its Fair Value and Liquidity Risk Management Committee. Potential liquidity tools listed in the filing encompass credit arrangements, transfers of validator positions, delayed settlement agreements and, subject to regulatory limits, liquid staking tokens or other smart-contract methods. As of the prospectus date, the fund had not entered a line of credit.

The amendment remains subject to SEC review and declaration of effectiveness before the staking program and associated distributions can commence. FETH currently charges an expense ratio of 0.25 percent.