Fidelity Investments has asked federal regulators to let its Ethereum exchange-traded fund (ETF) earn staking rewards directly from the blockchain, a shift that could intensify competition among crypto ETFs and reshape how institutional investors access digital asset income. The asset manager filed an amended registration statement with the US Securities and Exchange Commission (SEC) on August 11 to add staking capabilities to its Fidelity Ethereum Fund, known by its ticker FETH, which currently holds approximately $898 million in assets.

What Is Ethereum Staking and Why Does It Matter for ETF Investors?

Ethereum staking is a process where cryptocurrency holders lock up their coins to help validate transactions on the Ethereum blockchain in exchange for rewards. Unlike traditional stock dividends, these rewards come directly from the network's proof-of-stake consensus mechanism. For an ETF, staking transforms a passive price-tracking fund into an income-generating vehicle, allowing shareholders to earn yield on top of any price appreciation.

Under Fidelity's proposal, FETH could stake up to 100 percent of its Ether holdings under normal market conditions, keeping only what is needed for redemptions, expenses, and liquidity. The fund would retain 85 percent of gross staking rewards, with the remaining 15 percent split among the sponsor, custodians, and node operators as a flat fee. Fidelity named three node operators, Blockdaemon, Figment, and Galaxy Digital Trading Cayman, to run the validator infrastructure that secures the network.

How Does Fidelity's Staking Model Compare to Competitors?

Fidelity is not the first major asset manager to offer staking-enabled Ethereum ETFs, and that timing matters significantly. Grayscale became the first US issuer to enable staking in a spot crypto ETF back in October 2025, and its Grayscale Ethereum Staking ETF later distributed $0.083178 per share, roughly $9.4 million in total, after earning rewards between October 6 and December 31 of that year. BlackRock took a different approach by launching a standalone iShares Staked Ethereum Trust ETF, ticker ETHB, in early 2026, designed to keep between 70 percent and 95 percent of its ETH staked through validators run by Figment, Galaxy, and Attestant.

Morgan Stanley proposed an even more generous rewards split in June, offering a 95 percent to 5 percent arrangement for its Ethereum and Solana ETFs, though Morgan Stanley's filing also flagged that validator activation queues could delay new staking rewards by around 63 days. Bitwise attempted to add staking to its own Ethereum ETF but withdrew that proposal in September 2025, a move that hinted at the regulatory and structural hurdles issuers still had to clear at the time.

What Regulatory Groundwork Enabled This Filing?

Fidelity's staking proposal leans on a fairly recent piece of federal tax guidance: Revenue Procedure 2025-31, issued by the Treasury Department and Internal Revenue Service (IRS) in November 2025. This guidance created a safe harbor allowing qualifying investment trusts holding digital assets to stake without losing their tax classification as investment trusts and grantor trusts. Fidelity said FETH intends to run its staking and liquidity operations in line with that safe harbor, a signal that the regulatory groundwork for ETF staking has matured considerably since the first spot Ether products launched in 2024.

How Will Quarterly Distributions Work?

Fidelity plans to make quarterly cash payouts to shareholders from staking rewards, though the exact size would swing with Ethereum staking yields, validator performance, network rules, fees, and any slashing events. Rewards would accumulate in ETH until Fidelity declares a record date, at which point a trading counterparty would sell the portion of ETH earmarked for distribution and convert it into dollars ahead of the payment date. Crucially, Fidelity said the quarterly distributions are not guaranteed, and a payout could be suspended if the fund's liabilities exceed the staking rewards it has collected, with those rewards instead held back to cover the trust's obligations.

Steps to Understand ETF Staking and Its Implications

• Staking Mechanics: Ethereum staking locks cryptocurrency into validators that secure the network, generating rewards paid in ETH that ETF sponsors can distribute to shareholders as income.
• Fee Structures: Different ETF issuers retain different percentages of staking rewards; Fidelity keeps 85 percent for shareholders while Morgan Stanley keeps 95 percent, creating competitive pressure on fee arrangements.
• Liquidity Trade-offs: Staked ETH becomes temporarily inaccessible since exiting a validator and completing a withdrawal can take anywhere from about a day to several weeks or months depending on network demand.
• Regulatory Approval: The Treasury Department's November 2025 safe harbor guidance provided the tax framework that made staking-enabled ETFs legally feasible for major asset managers.

The competitive landscape is shifting rapidly. FETH has still managed to attract steady demand without staking, pulling in roughly $2.13 billion of cumulative net inflows since its July 2024 debut. However, one analyst noted that FETH's absence of staking left it at a "relative disadvantage" compared with Grayscale's and BlackRock's staking-enabled products, a gap Fidelity now appears to be closing.

If staking becomes the default feature rather than the exception among spot Ether ETFs, issuers without it risk losing assets to rivals offering an extra layer of return on the same underlying exposure. That competitive pressure helps explain why Fidelity, one of the largest asset managers in the world, moved to close the gap rather than let ETHB and Grayscale's staking products pull further ahead in the broader crypto ETF market.

Fidelity's filing also highlights a liquidity risk management program with daily monitoring and an annual review by its Fair Value and Liquidity Risk Management Committee, along with backup options like credit arrangements or transfers of validators if needed. The fund expects staking to begin "as soon as practicable" once the prospectus takes effect, though there is no fixed minimum amount of ETH the fund must stake.

The broader implication is clear: staking is no longer a niche feature for crypto-native investors. As major institutional asset managers compete to offer yield-bearing exposure to Ethereum, the line between passive price-tracking and active income generation continues to blur, potentially reshaping how institutions think about digital asset allocation.