Fidelity’s Ethereum and Solana exchange-traded funds have been given authority to stake up to 100% of their cryptocurrency holdings, while their latest prospectuses outline several options for meeting redemptions if withdrawals from the networks are delayed.
The arrangements apply to the Fidelity Ethereum Fund, known as FETH, and the Fidelity Solana Fund, or FSOL. They are set out in prospectuses dated 21 August.
Neither fund is required to stake a minimum amount. FD Funds Management, the sponsor of both products, can retain ether or SOL outside staking programmes to prepare for expected redemptions, cover expenses, protect assets and support its liquidity arrangements.
The 100% limit represents the maximum permitted under the fund documents. It does not mean that both funds currently have all of their assets staked.
FSOL reported that 1,675,797 SOL was staked from a total holding of 1,687,589 SOL on 30 June. Those staked assets had a fair value of $126.3m. The fund’s quarterly report recorded net assets of $127.079m and said that 99.64% of its holdings had been staked over the previous 30 days.
FETH was at an earlier stage. Its 30 June report showed holdings of 476,311 ether and net assets of $758.609m, but did not provide a separate figure for staked ether.
Fidelity changed the trust and custody arrangements for FETH in August. Its updated prospectus said staking was expected to start as soon as practicable after 21 August, although it did not state how much ether had subsequently been staked.
Plans for delayed withdrawals
The prospectuses describe reserves as the first line of defence if investors seek redemptions. Where those reserves are inadequate and the required assets cannot be unstaked within the normal settlement period, the sponsor may temporarily extend the time allowed for settlement.
If withdrawal remains impractical after what the documents describe as a reasonable extension, the sponsor may provide cash instead of some or all of the cryptocurrency that would otherwise be delivered through an in-kind redemption.
The filings present these as discretionary measures. They are not automatic safeguards, and neither trust has said that the options have already been used.
The potential timing of withdrawals differs between the two blockchain networks. FSOL expects to regain complete control of staked SOL within two days in normal circumstances, although it does not guarantee that timeframe.
FETH does not specify a set period for withdrawals. Ethereum validators first have to leave the active validator set and then complete a compulsory waiting period before the network’s withdrawal process can release their assets. Strong demand for exits or a disruption to the network could make either process take longer.
Fidelity has also identified possible future sources of liquidity. These include a credit facility provided by the sponsor or one of its affiliates, borrowing digital assets directly, selling or transferring validator positions, and using arrangements based on liquid staking tokens or tradeable rights linked to staked assets.
Neither trust had a line of credit in place on 21 August. Several of the proposed mechanisms would also depend on developments involving legal requirements, tax treatment or exchange rules.
Staking rewards and distributions
Each trust pays total staking fees equal to 15% of its gross rewards and keeps the remaining 85%.
The retained rewards may be used for trust expenses, quarterly cash distributions, redemptions and further staking, in that order. However, the sponsor has the power to change that priority.
The trusts intend to make quarterly distributions in cash after selling the rewards they receive. The amount and timing of those payments are not guaranteed.
Ethereum had risen by 0.59% over the previous 24 hours and was ranked second by market capitalisation at the time of publication.
Also known as “Akiba”, Liam Wright is a reporter, podcast producer and Editor-in-Chief at CryptoSlate. He believes decentralised technology has the potential to make…
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