A major weakness of Wall Street’s Ethereum ETFs since their inception is now being addressed. On August 11, 2026, Fidelity officially filed a pre-effective amendment proposal with the US Securities and Exchange Commission (SEC) to add a staking feature to its spot Ethereum ETF (FETH). The move promises to convert staking yields into US dollar cash to be directly distributed to shareholders’ accounts every three months.
This filing changes the direction of FETH, which has been operating since 2024 with a fee structure of 0.25%. Initially, this investment product was designed purely to track the Fidelity Ethereum Reference Rate index. If the SEC approves this latest proposal, FETH’s investment objective will shift to tracking the index price plus real income flowing from staking activities. Fidelity has designed a flexible scheme, allowing the product to stake up to 100% of the total ETH under its management without any required minimum limits.
Path Cleared Post-Tax Rules
The effort to bring on-chain yields to traditional exchanges does not come out of nowhere. This path was cleared after the US Treasury and the IRS issued specific safe harbor guidelines. The new rules provide legal certainty that crypto trusts can generate income from staking without triggering reporting issues or violating institutional tax regulation guidelines.
To run these operations, Fidelity has appointed three digital asset custody providers: Anchorage Digital, BitGo, and its own business arm, Fidelity Digital Assets. All allocated ETH coins will be staked through one or more selected node operators. Fidelity is not the first player to take this route. Grayscale has already set a precedent as the first US ETF to pay staking yields to its investors. At the same time, the SEC is also known to have processed a similar proposal filed by BlackRock for their ETHA product.
A Cash Promise That Is Not Always Certain
When the first wave of spot Ethereum ETFs launched on US exchanges two years ago, the staking feature was intentionally disallowed by regulators. The absence of this feature reduced the appeal of ETFs for investors who realized that holding ETH coins directly in a personal wallet could yield additional returns. Now, the prospect of periodic cash distributions provides a new reason for institutions to hold their portfolios. In the future, every dollar that goes into shareholders’ pockets will be counted as ordinary income for tax reporting purposes.
However, this yield-sharing scheme is not without risk for traditional investors. In its document, Fidelity warns of two blockchain-specific technical risks that are now crossing over to the stock exchange. The first threat comes from slashing, which is an asset deduction penalty if a validator acts to the detriment of the network. The second issue concerns the waiting period during the unstaking process, which could potentially extend the redemption timeline when investors want to cash out their shares. Furthermore, these quarterly cash distributions are non-binding and can be suspended at any time at the discretion of Fidelity’s management.
Reported by Decrypt.
Read also: How Crypto Staking Works and Its Risks
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
