Fidelity has asked the U.S. Securities and Exchange Commission for permission to transform its spot Ethereum ETF into a yield-bearing product, filing a pre-effective amendment to its registration statement on Aug. 11 that would allow the Fidelity Ethereum Fund (FETH) to stake the ETH it holds.

Under the proposed change, FETH could stake up to 100% of its Ethereum holdings under normal conditions, though no minimum staking threshold is required. Staking rewards would be shared among node operators, custodians, and Fidelity as fees, with the trust retaining a portion. If approved, the fund would distribute remaining rewards to investors as quarterly cash distributions, converting staked ETH into U.S. dollars before paying shareholders of record. Fidelity expects these rewards to be treated as income for tax purposes.

The amendment would revise the fund's stated investment objective. FETH currently tracks the Fidelity Ethereum Reference Rate, adjusted for fees. With staking enabled, the fund's benchmark would become that index plus an additional amount derived from staking yields. According to the filing, the trust is expected to outperform the underlying index before expenses are deducted.

Staking is the mechanism by which Ethereum secures its network: holders lock up ETH to assist in validating transactions and, in return, earn newly minted tokens. Fidelity intends to route its ETH through qualifying custodians — including Anchorage Digital, BitGo, and Fidelity Digital Assets — to one or more node operators responsible for running the validator infrastructure.

Fidelity's move follows similar actions by competitors. Grayscale became the first U.S. ETF issuer to distribute ETH staking rewards directly to holders, and the SEC has acknowledged BlackRock's proposal to incorporate staking into its ETHA fund. With three of the largest spot Ethereum ETF issuers now pursuing staking, the feature is quickly shifting from a differentiator to a baseline expectation among institutional crypto products. These developments come after a Treasury and IRS safe harbor that allowed crypto-focused trusts to generate staking yield without triggering tax or regulatory complications, removing a key compliance barrier that had kept issuers on the sidelines.

When the SEC initially approved spot Ethereum ETFs in 2024, those products explicitly excluded staking, and the absence of yield has been a persistent competitive drawback. At the time, the agency under then-Chair Gary Gensler required staking removals as a condition of approval. The current filing wave reflects a markedly different regulatory climate under the SEC's new leadership, which has signaled greater openness to embedding native crypto-economic features into registered investment products.

The filing is candid about the risks. Distributions are not guaranteed, and Fidelity may suspend or terminate them at its discretion. Staked ETH is also subject to slashing risk — penalties imposed on validators that misbehave or underperform — and assets can be locked during the unstaking period. FETH plans to address potential liquidity constraints by extending redemption timelines if necessary.

FETH launched alongside the first cohort of U.S. spot Ethereum ETFs in 2024 and carries a 0.25% expense ratio. The staking amendment will take effect only upon the SEC declaring the registration statement effective. Pending decisions on the parallel proposals from BlackRock and other issuers will indicate whether the agency greenlights staking across the entire Ethereum ETF complex or proceeds on a case-by-case basis.