Fidelity is preparing to introduce staking capabilities to its Fidelity Ethereum Fund (FETH), a spot ether ETF holding approximately $898 million in assets that began trading in 2024. The proposed amendment would enable the fund to generate a new income stream for investors from the ether it already holds, leveraging Ethereum's proof-of-stake consensus mechanism—active since the network's transition from mining in September 2022—under which validators earn rewards for helping secure the blockchain.

Under the planned changes, FETH could stake up to 100% of its ether holdings under normal market conditions. Fidelity has not established a minimum staking threshold, though the fund intends to retain a portion of its ether unencumbered to fulfill redemption requests, cover operational expenses, and maintain adequate liquidity. This liquidity buffer addresses a structural feature of Ethereum staking: while withdrawals have been enabled since the network's Shanghai upgrade in April 2023, the protocol enforces an exit queue that can delay the unstaking process during periods of high activity.

Reward Distribution and Operational Structure

Fidelity would retain 85% of gross staking rewards for the benefit of shareholders. The remaining 15% would be allocated to the fund sponsor, custodians, and node operators facilitating the staking infrastructure. Fidelity has named Blockdaemon, Figment, and Galaxy as the node operators selected for the fund.

This arrangement would allow investors to gain exposure to Ethereum staking rewards—currently yielding roughly 3% annually on the network, though that figure fluctuates with validator participation and transaction volume—without the need to directly operate validators or lock up their own ether. Net staking rewards would first be applied to cover fund expenses. Any remaining proceeds would then be distributed to shareholders on a quarterly basis. Fidelity noted that the fund may sell a portion of its ether to generate the cash necessary for these distributions.

Broader Competitive Landscape

The proposal arrives as asset managers increasingly seek to integrate staking into U.S. ether investment products. Grayscale and 21Shares have similarly pursued staking within their existing ether funds, while BlackRock has opted for a separate staking product structure. No spot ether ETF currently trading in the United States offers staking, making these proposals a potential differentiator in a crowded market.

Recent regulatory and tax developments have helped pave the way for such offerings. An IRS safe-harbor bulletin issued in November 2025 permits qualifying cryptocurrency trusts to stake assets without forfeiting their grantor-trust tax treatment.

For Fidelity, the addition of staking could strengthen the competitive positioning of its ether fund by combining price exposure with potential cash income. However, staking rewards are variable in nature, and the actual amounts distributed will depend on rewards earned, fund expenses, liquidity requirements, and applicable regulatory constraints.

The proposed amendments would give FETH a more income-oriented framework while preserving its fundamental objective of tracking the price of ether. The plan also underscores how competition among U.S. crypto investment products is evolving beyond passive price exposure toward yield-generating structures.