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ARK 21Shares Revamps Ethereum ETF Application: Embraces Cash Creations and Explores Staking

ARK 21Shares enhances Ethereum ETF proposal

In a move to align its Ethereum ETF offering with the successful blueprint of its Bitcoin counterpart, ARK 21Shares has submitted an updated application for its spot Ethereum exchange-traded fund (ETF). This revision introduces a cash-creation mechanism, mirroring the structure of its previously approved spot Bitcoin ETF, while also proposing an innovative approach to generating additional income through staking Ether (ETH). The amendment marks a significant pivot from the initial in-kind redemption model, aiming for a more streamlined and regulatory-friendly framework. 

This strategic update follows a series of constructive dialogues with the United States Securities and Exchange Commission (SEC).

Cash creation model: a strategic shift for ETF operations

ARK 21Shares has taken a significant step forward in the evolution of cryptocurrency ETFs by adopting a cash creation model for its spot Ethereum ETF, a strategy akin to its groundbreaking spot Bitcoin ETF. This model simplifies the process of ETF share issuance, where cash is used to purchase Ether directly, depositing the acquired assets into the trust’s custodial account for share creation. This method stands in contrast to the previous in-kind model, which involved non-monetary asset exchanges and presented a more complex operational framework.

Bloomberg ETF analyst Eric Balchunas highlighted the amendment's alignment with the regulatory blueprint of approved spot Bitcoin ETFs, signaling a potential shift in the SEC's approach to cryptocurrency funds. 

Eric Balchunas (@EricBalchunas):

“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

 

The transition to cash creations is designed to enhance the ETF’s operational efficiency and market responsiveness, although it introduces new dynamics in arbitrage transactions by Authorized Participants, aiming to maintain the share price in close correlation with the Ether market.

Ether staking: a potential game-changer

ARK 21Shares is pioneering within the ETF landscape by proposing the integration of Ether staking into its spot Ethereum ETF. Staking involves locking up a portion of the ETF's Ether holdings to support the network's operations, in return for rewards that are treated as income. 

This move not only aims to enhance the value proposition of the ETF by generating additional income but also positions ARK 21Shares at the forefront of blending traditional finance (TradFi) with the innovative mechanisms of the crypto world.

sassal.eth/acc (@sassal0x)

“All the TradFi people are going to absolutely salivate over the real yield that a staked spot ETH ETF can offer

You don't own enough ETH”

The proposal to stake Ether signifies exploration of new income avenues, yet it comes with its set of challenges and risks, notably the potential for ETH losses through slashing and the constraints of locked-up assets over extended periods. Finance lawyer Scott Johnsson pointed out that the inclusion of staking in the ETF's strategy is subject to regulatory discussions, indicating a willingness on the part of ARK 21Shares to navigate the regulatory complexities surrounding such innovative practices.

Scott Johnsson (@SGJohnsson):

“Interesting, adding a staking component (in brackets): https://t.co/x8uhHZPxJX

pic.twitter.com/dOilIKEyrs

Skeptics remain, as Bloomberg ETF analyst James Seyffart suggests, regarding the SEC's approval for staking within spot Ether ETFs.