Fidelity Seeks SEC Approval to Add Ethereum Staking to $898M FETH Fund

How the staking plan would work

Fidelity said the trust would not be required to stake a minimum amount of ether. The filing allows staking of up to all of the fund’s ETH under normal conditions, although some portion could remain unstaked when needed for operational purposes such as redemptions, fund expenses, distributions and liquidity management.

Under the structure described, the fund’s custodians would keep control of the private keys, while outside node operators would run the validator infrastructure on Ethereum’s proof-of-stake network. Fidelity identified Blockdaemon, Figment and Galaxy Digital Trading Cayman as intended node operators, with allocations based on factors including security, operating experience, technology and concentration limits.

Reward sharing and shareholder payouts

The proposed fee split gives FETH 85% of gross staking rewards and assigns a flat 15% to the sponsor, custodians and node operators. After that split, the trust would use rewards first to satisfy sponsor fees and other expenses or liabilities. Only then would remaining amounts be available for shareholder distributions, redemption needs or additional staking.

Fidelity said staking rewards would accrue in ETH and later be converted into U.S. dollars for payment. After a record date is set, a trading counterparty would sell the ether designated for distribution before the payment date. Under normal conditions, the fund expects those payouts to be made quarterly, but it said they would not be guaranteed.

The amount available for distribution would depend on staking yields, validator performance, Ethereum network rules, fees, expenses, slashing events and other operating factors. Fidelity also said a payment could be suspended if the fund’s liabilities exceed the staking rewards it has received, in which case the rewards would be retained to meet trust obligations.

Tax guidance and product changes

Fidelity tied its staking proposal in part to Revenue Procedure 2025-31, tax guidance issued by the Treasury Department and Internal Revenue Service in November 2025. That safe harbor allows qualifying investment trusts holding digital assets to engage in staking without necessarily losing their treatment as investment trusts and grantor trusts for federal income tax purposes.

The fund said it intends to operate its staking and liquidity processes in line with that IRS framework. Fidelity also said the trust’s investment objective would be revised so performance tracks ether through the Fidelity Ethereum Reference Rate, adjusted for expenses and liabilities, plus an amount linked to staking rewards.

Liquidity and operational risks remain

Fidelity acknowledged that staking a large share of the portfolio would leave part of the fund’s ether temporarily unavailable. According to the filing, withdrawing ETH from validators may take about one day in some circumstances, but that process could stretch to several weeks or even months when validator queues or network demand are elevated.

To address that, the trust said it would maintain readily available assets for expected redemptions, expenses and distributions, supported by a liquidity risk management program with daily monitoring and annual committee review. Potential tools listed in the filing include credit arrangements, transfers of validator positions, delayed settlement agreements and, if regulations permit, liquid staking tokens or other smart contract-based methods. Fidelity said no line of credit had been entered into as of the prospectus date.

The filing also describes redemption and security risks. If unstaked ETH is not enough to complete a redemption on time, settlement could be extended while assets exit validators. If an in-kind redemption still cannot be completed within a reasonable extended period, the sponsor could pay some or all of it in cash using the fund’s ETH index price on the relevant order date. Fidelity also warned that slashing, operational failures, protocol errors or cybersecurity breaches affecting custodians or node operators could reduce the amount of ETH held by the trust.

What comes next

The proposal now depends on SEC approval of the amended structure. If regulators allow the changes, Fidelity would join a growing group of issuers testing how staking income can be incorporated into U.S.-listed ether products through cash distributions rather than direct crypto payments to investors.

The filing also places Fidelity’s approach alongside other emerging models in the market. The article notes that Morgan Stanley previously proposed a 95%-5% reward split for its planned Ethereum and Solana ETFs, while Grayscale has already used a cash distribution model for staking proceeds in one of its Ethereum products. For now, Fidelity’s plan remains a proposal, with payout timing and amounts still contingent on approval and fund operating conditions.