Fidelity Seeks SEC Approval to Stake Up to 100% of FETH's Ether, Pay Rewards Quarterly

Fidelity has asked U.S. regulators to allow its spot ethereum ETF to generate staking income, a move that could put nearly all of the Fidelity Ethereum Fund (FETH)'s ether to work and return proceeds to investors through quarterly cash distributions. In a pre-effective amendment filed with the Securities and Exchange Commission on Aug. 11, Fidelity proposed updating FETH's mandate so the fund would track ether's price while also capturing staking rewards. Fidelity said the additional income could help FETH outperform its ether reference rate before fees and other expenses. The amendment is preliminary and must become effective before any changes take effect. Under normal conditions, the fund would seek to stake up to 100% of its ETH, while keeping some assets unstaked as needed to meet redemptions, pay expenses, or manage liquidity. Anchorage Digital, Bitgo, and Fidelity Digital Assets would custody the ether and support staking through third-party node operators. The program would charge a 15% staking fee shared among Fidelity, custodians, and node operators. FETH would retain the remaining 85% of rewards before fund expenses and other obligations. Fidelity's approach could raise the bar on yield for competing products from Blackrock and Grayscale. The filing also highlights staking-specific risks not present in a purely spot ETF. ETH may be temporarily unavailable while validators enter or exit the network, and operational issues could lead to slashing penalties. Rather than automatically reinvesting all rewards, Fidelity plans to make quarterly cash distributions in normal circumstances. Rewards would accrue in ETH, then Fidelity would sell the amount designated for distribution into dollars and pay shareholders. The filing notes distributions are not guaranteed and may be changed, suspended, or ended. Fidelity also said staking rewards are expected to be treated as taxable income for shareholders under current federal guidance. The structure aligns with an IRS safe harbor issued in November 2025, which set conditions for qualifying crypto investment trusts to stake assets without losing grantor-trust tax status. Grayscale has already paid out ethereum staking rewards, and Blackrock launched a staking-enabled ether product earlier this year. The push to add yield is reshaping competition among ethereum ETFs, with staking increasingly positioned as an embedded feature rather than an activity kept outside the fund.