ARK 21Shares has made adjustments to its spot ether exchange-traded fund (ETF) application, mirroring the cash creation model adopted for its spot Bitcoin ETF, and has introduced a proposal to stake a portion of the ETF's ether holdings to generate additional revenue.
In December 2023, ARK 21Shares, alongside BlackRock, became pioneers in transitioning their spot Bitcoin ETF to a cash creation and redemption model following discussions with U.S. securities regulators.
Initially, ARK 21Shares proposed a physical redemption model for its spot Ethereum ETF, similar to non-monetary payments like Bitcoin. However, the latest amendment filed on February 7 reveals the adoption of a cash creation model, aligning it with approved spot Bitcoin ETFs, according to Bloomberg ETF analyst Eric Balchunas.
Under the cash creation mode, ARK 21Shares will acquire Ether equivalent to the order amount and deposit it into the custodian's trust account, subsequently creating shares of the Spot Ethereum ETF. Despite this alignment, ARK 21Shares acknowledges potential impacts on arbitrage trades by authorized participants aiming to maintain close share price correlation with Ethereum.
Furthermore, ARK 21Shares proposes integrating a staking component into its spot ether ETF, where a portion of the Trust's assets may be pledged through trusted third-party providers. This staked ether is expected to accrue rewards, constituting revenue for the trust. However, the firm acknowledges associated risks such as potential losses through slashing and prolonged locking of staked ether.
Finance lawyer Scott Johnsson highlighted that the mention of the pledge was bracketed, indicating ARK 21Shares' desire to include it and engage in discussions with regulators. Despite these developments, Bloomberg ETF analyst Eric Balchunas has adjusted the likelihood of an Ethereum spot ETF approval in 2024 to 60% from 70% on January 30, reflecting evolving regulatory dynamics.
The SEC faces deadlines for decisions on various ETF applications, including those from VanEck, ARK 21Shares, Hashdex, Grayscale, and Invesco, with determinations expected by May 23, May 24, May 30, July 18, and July 5, respectively. Fidelity and BlackRock's applications are due for decisions by August 3 and August 7, respectively, although a comprehensive decision on all applicants is anticipated by May 23, akin to the SEC's approach to spot Bitcoin ETFs on January 10.
