Fidelity Seeks Green Light to Stake Its Entire Ethereum ETF Holdings

Fidelity is set to add staking and quarterly cash payouts to its Fidelity Ethereum Fund (FETH).

According to the SEC filing,  the fund could stake up to 100% of its Ethereum holdings under normal conditions, though no minimum staking level was set. 

Fidelity Ethereum ETF expands fund structure

FETH currently holds $898 million in net assets. The fund would keep a portion of its Ethereum available to cover redemptions, expenses, among others.

The move comes after a safe harbor bulletin issued by the IRS in November 2025. This permitted crypto trusts to stake their assets without losing their grantor-trust tax status. 

With this filing, the firm aims to join Grayscale and 21Shares in adding staking to an already-existing Ethereum ETF. 

BlackRock was the only firm to do things differently. They chose to launch a separate staking product rather than modify its current ETH fund. Fidelity would retain 85% of gross staking rewards, while the remaining 15% would go to the sponsor, custodians and node operators.

Blockdaemon, Figment and Galaxy were named as the trust's node operators. Net staking rewards would first go to covering fund expenses. The remainder funds would be used for quarterly cash distributions, since IRS rules require funds to distribute net staking rewards at least once every quarter. 

The company said the fund may also sell some of its ETH to raise cash when needed to fund those payouts.

How Fidelity plans to turn staking rewards into cash

Staking income would be converted from ETH into dollars instead of being paid out in crypto. Rewards would accumulate in the token until a record date is stated. At this point, a trading counterparty would sell the coins set aside for distribution ahead of the payment date. 

The ETF is expected to make these cash distributions quarterly. The exact amount would depend on some factors, like the Ethereum staking yields, validator performance, network rules, fees, expenses, and slashing events. 

A similar payout system was tested by Grayscale. The firm’s ETH Staking ETF distributed $0.083178 per share after earning rewards between October 6 and December 31, 2025.

Grayscale sold its staking rewards and distributed the proceeds as cash, with its ETHE fund becoming the first U.S.-listed spot crypto exchange-traded product to pass staking proceeds on to shareholders. 

BlackRock's iShares Staked Ethereum Trust ETF started trading in March and was built to keep between 70% and 95% of its staked ETH through validators. That fund launched with somewhere between $100 million and $107 million in assets and saw about $15.5 million in first-day trading volume.

The new Fidelity fund comes with some risks. Putting a large share of FETH in validators would leave part of the holdings temporarily locked up. 

Exiting a validator and completing a withdrawal can take about a day under normal conditions. However, the process could stretch to weeks or even months if validator queues or network demand run high. 

To manage this risk, the trust plans to keep a portion of its assets accessible for expected redemptions and distributions.