Fidelity plans Ethereum staking for $898M FETH fund

Fidelity has moved to add Ethereum staking and quarterly cash distributions to its $898 million Fidelity Ethereum Fund, with the trust allowed to stake as much as 100% of its ETH under normal conditions.

The U.S. Securities and Exchange Commission filing submitted on Aug. 11 shows that Fidelity amended the fund’s registration statement to include staking, allowing FETH to earn rewards from ether already held by the trust. Fidelity plans to begin staking as soon as practicable after the prospectus takes effect.

Under the proposed structure, Fidelity would not have to stake a minimum amount of the fund’s ETH. While up to 100% could be committed to validators during normal conditions, some ether would remain available when needed for redemptions, fund expenses, distributions, and liquidity management.

The filing defines normal conditions as periods when Ethereum is operating without material disruption, redemption activity remains within expected ranges, and no extraordinary event requires Fidelity to hold additional ETH outside staking.

Fidelity Ethereum Fund could stake up to 100% of its ETH

Once Fidelity decides how much ETH can be staked, the fund’s custodians would work with selected node operators to place the assets into Ethereum validators. The custodians would retain control of the private keys, while the node operators would handle the validator infrastructure needed to participate in Ethereum’s proof-of-stake network.

Fidelity named Blockdaemon, Figment and Galaxy Digital Trading Cayman as its intended node operators. Allocation among them would depend on factors including security practices, operating experience, technology and the concentration of the fund’s ETH with individual operators.

Staking rewards would be subject to a flat 15% fee shared among the sponsor, custodians and node operators. FETH would retain the other 85%, according to the filing. After those fees, rewards would first be used for sponsor fees or other trust expenses and liabilities, followed by quarterly shareholder distributions, redemption requirements and additional staking.

The arrangement differs from a staking model proposed by Morgan Stanley in June. As crypto.news reported at the time, Morgan Stanley amended its proposed Ethereum and Solana ETFs so that 95% of staking rewards would stay within the trusts, while staking providers and custodians would receive the remaining 5%.

Morgan Stanley’s filing also detailed some of the operational limits that can affect Ethereum ETF staking. As of May 18, roughly 3.64 million ETH were waiting in Ethereum’s validator activation queue, which the asset manager estimated could translate into a wait of about 63 days before newly deposited ETH began earning staking rewards.

Staking rewards would fund quarterly cash payouts

For FETH shareholders, the staking income would eventually be converted from ETH into U.S. dollars. Fidelity said rewards would accumulate in ether until a record date is declared, after which a trading counterparty would sell the ETH available for distribution before the payment date.

Under normal conditions, the fund expects to make those cash distributions quarterly. The exact amount would depend on Ethereum staking yields, validator performance, network rules, fees, expenses, slashing events and other operating conditions, while Fidelity said distributions would not be guaranteed.

Fidelity could suspend a payout when the fund’s liabilities exceed the staking rewards it has received, with those rewards instead retained to cover the trust’s obligations. The sponsor would also set the record and payment dates under the exchange’s rules.

A similar cash payout structure has already been used by Grayscale. In January crypto.news reported that the Grayscale Ethereum Staking ETF distributed $0.083178 per share after earning staking rewards between Oct. 6 and Dec. 31, 2025. The payment totaled about $9.4 million.

Grayscale sold the staking rewards and distributed the proceeds as cash rather than paying investors in ETH. Its Ethereum products began staking in October 2025, with ETHE becoming the first U.S.-listed spot crypto ETP to distribute staking proceeds to shareholders.

BlackRock later chose to launch a separate product instead of adding staking to its existing spot Ethereum fund. Its iShares Staked Ethereum Trust ETF, ETHB, began trading in March and was designed to keep roughly 70% to 95% of its ETH staked through validators operated by Figment, Galaxy and Attestant. Earlier coverage showed that ETHB launched with roughly $100 million to $107 million in assets and generated about $15.5 million in first-day trading volume.

IRS rules cleared a tax path for ETF staking

Fidelity’s proposed staking structure relies in part on U.S. tax guidance issued in November 2025. The Treasury Department and Internal Revenue Service introduced Revenue Procedure 2025-31, creating a safe harbor that allows qualifying investment trusts holding digital assets to participate in staking without jeopardizing their treatment as investment trusts and grantor trusts for federal income tax purposes.

The November 2025 guidance addressed a tax issue that had complicated efforts by fund issuers to add staking to products holding proof-of-stake assets such as ETH and SOL. Under the framework, qualifying trusts can earn staking rewards while maintaining their tax classification if they comply with the required conditions.

Fidelity said FETH intends to conduct its staking and liquidity operations in line with the IRS safe harbor. The fund’s investment objective would also be modified so that its performance tracks ether through the Fidelity Ethereum Reference Rate, adjusted for expenses and liabilities, plus an amount tied to staking rewards.

Staked ETH creates additional redemption risks

Putting a large share of FETH’s ether into validators would leave part of the portfolio temporarily unavailable for transfers. Fidelity said exiting a validator and completing an Ethereum withdrawal can take about one day under some conditions but could extend to several weeks or months when validator queues or network demand are high.

To manage that risk, the trust would maintain assets that can be readily used for expected redemptions, expenses and distributions. Fidelity has also created a liquidity risk management program that includes daily monitoring of available assets and an annual review by its Fair Value and Liquidity Risk Management Committee.

Possible liquidity sources listed in the filing include credit arrangements, transfers of validator positions to third parties, delayed settlement agreements and, subject to regulatory restrictions, liquid staking tokens or other smart contract-based methods for accessing staked ETH. Fidelity said FETH had not entered into a line of credit as of the prospectus date.

When unstaked ETH is insufficient to complete a redemption on schedule, Fidelity could extend the settlement period while waiting for ether to exit validators. If an in-kind redemption still cannot be completed within a reasonable extended period, the sponsor could instead pay some or all of the redemption in cash based on the fund’s ETH index price on the applicable order date.

The filing also identifies slashing as a risk to the fund’s staked assets. Fidelity said validator failures, protocol errors, cybersecurity breaches involving custodians or node operators and operational failures during reward transfers could reduce the ETH retained by the trust.