Fidelity’s $898 million Fidelity Ethereum Fund now includes Ethereum staking as well as quarterly cash payments. The trust is allowed to stake up to 100% of their ETH in normal circumstances.
You can read more about it here:
- Fidelity Ethereum Fund, a $898-million fund managed by Fidelity, will now include Ethereum stakes and cash payments every quarter.
- FETH can stake 100% of their ETH in normal circumstances while still having enough ether for liquidity requirements.
- Funds would keep 85% of the gross stake rewards. The remaining 15% goes to sponsors, node operators, and custodians.
- Investors would receive quarterly payments in cash after the net stake rewards are used to cover all fund costs.
Securities and Exchange Commission (SEC) of United States filing Fidelity changed the registration statement of the trust on August 11, enabling FETH to receive rewards for ether that the trust already holds. Fidelity will begin staking the ether as soon as possible after this prospectus comes into effect.
Fidelity does not need to bet a certain minimum of ETH in the fund. While 100% of the ETH can be dedicated to validators under normal conditions, some will remain to cover redemptions, fund costs, distributions and liquidity management.
Fidelity’s filing describes normal conditions as those periods in which Ethereum runs without disruption, when redemption activity is within the expected ranges and where no exceptional event forces Fidelity Holdings to keep additional ETH aside from staking.
Fidelity Ethereum Fund can stake as much as 100% of their ETH
Fidelity will decide how much ETH it can stake, and the custodians of the fund would then work with certain node operators in order to put the funds into Ethereum validators. Custodians retain private keys while node operators handle validator infrastructure required to take part in Ethereum’s Proof-of-Stake network.
Fidelity has named Blockdaemon as one of its node operators. It would be determined by factors such as security practices and operating experience. Technology, too, was also considered.
The stake rewards will be shared by the sponsors, node operators and custodians at a 15% flat fee. According to the filing, FETH will retain the remaining 85%. Following these fees, the rewards are used first for sponsoring fees, other trust costs and liabilities. Next, quarterly shareholder distributions will take place, along with redemption requirements, and extra staking.
This arrangement is different from the staking plan proposed by Morgan Stanley back in June. Crypto.news reported at the timeMorgan Stanley modified its proposed Ethereum and Solana exchange-traded funds (ETFs) so that 95% staking rewards will stay in the trust, and staking providers, and custodians, would receive the rest 5%.
Morgan Stanley’s filing also outlined some of the limitations on Ethereum ETFs stake. According to Morgan Stanley, as of May 18 approximately 3,64 million ETH waited for activation in Ethereum’s validator. This could mean a 63-day wait before newly deposited ETH started earning staking benefits.
Cash payouts would come from stake rewards
FETH investors would see their staking earnings converted to dollars. Fidelity explained that the rewards would be accumulated in ether, until a date of record is announced. After this date, a trading partner would buy the ETH for payment before the date.
The fund will make these cash distributions in normal circumstances, quarterly. Fidelity has said that distributions are not guaranteed. The amount will be determined by Ethereum staking returns, validator performance and network rules.
The trust could be required to pay its obligations if the liabilities of the fund exceed any staking reward it received. Fidelity would then suspend the payout. According to the exchange rules, it would be the sponsor who sets the dates for the records and payments.
Grayscale already uses a cash-based payout system similar to this. Grayscale began offering cash payments in January crypto.news reported Grayscale Ethereum Staking ETF paid $0.083178 a share for staking rewards earned between October 6, 2025 and December 31, 2025. About $9.4million was paid.
Grayscale paid investors with cash instead of ETH. Grayscale’s Ethereum products started staking on October 20, 2025. ETHE became the first U.S. listed spot crypto ETP that distributed staking profits to investors.
BlackRock chose later to launch a new product rather than add staking into its spot Ethereum fund. Its iShares Ethereum Trust Trust ETF, ETHB began trading on March 1 and was designed so that roughly 70% to 90% of ETH would be staked by validators run by Figment Galaxy and Attestant. Earlier coverage showed ETHB began trading with assets between 100 and 110 million dollars, or roughly $15.5 million.
IRS has cleared up a path to tax-free ETFstaking
Fidelity’s proposed structure for staking is partly based on U.S. guidance released in November 2025. Revenue Procedure 2025-31, issued by the Treasury Department and Internal Revenue Service, creates a “safe harbor” that permits investment trusts with digital assets holdings to take part in staking while not jeopardizing federal income tax treatment.
You can also find out more about the following: November 2025 guidance The framework addressed a complex tax problem that was preventing fund issuers from adding staking capabilities to their products with proof-of stake assets, such as ETH or SOL. Qualifying trusts are able to receive staking rewards and maintain their tax classification by meeting the necessary conditions.
Fidelity stated that FETH will conduct its staking operations and liquidity operations according to the IRS Safe Harbor. Fund’s Investment Objective would be changed so its performance is tracked by ether using the Fidelity Ethereum reference rate, after adjusting for expenses and liabilities plus an amount related to staking incentives.
Additional risks associated with staked ETH
FETH would temporarily be unable to transfer funds if a significant portion of its ether was placed in validators. Fidelity stated that exiting validators and completing Ethereum withdrawals can take up to one day in some circumstances, but it could be extended by several weeks or even months if validator queues are long or the network is busy.
In order to manage this risk, the trust will maintain assets which can easily be used for redemptions, distributions and expenses. Fidelity also has a program for managing liquidity risks that involves daily asset monitoring and an annual assessment by the Fair Value and Liquidity Risk Management Committee.
The filing lists several possible liquidity sources, including credit agreements, transfer of validator positions, delayed settlement arrangements and, depending on regulatory restrictions, liquid staking or smart contracts-based access to staked ETH. Fidelity stated that FETH did not have a credit line as of the date of prospectus.
Fidelity may extend the settlement time while waiting to see ether exit validators. In the event that an in-kind payment cannot be made within a reasonable period of time, Fidelity could pay a portion or the entire redemption amount in cash based upon the fund’s ETH Index price at the order date.
In the filing, slashing is also identified as a potential risk for staked assets. Fidelity warned that failures of validators, protocol errors and cybersecurity breaches involving the custodians/node operators, as well as operational failures when transferring rewards, could result in a reduction of the ETH the trust retains.
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Source: crypto.news
