Fidelity Prepares Ethereum Staking for FETH Fund, Risks Lurking Beneath

Fidelity, a well-established financial services company, is gearing up to introduce Ethereum staking for its FETH fund. This move will enable the fund to participate in Ethereum's proof-of-stake consensus algorithm and earn rewards. However, there's a catch, funding quarterly cash distributions could reduce FETH's exposure to ETH.

As of August 11, FETH held $898.71 million in net assets. The fund has been amended to allow staking, with custody agreements drawn up with Anchorage Digital and BitGo. Fidelity will retain the private keys, while its chosen operators, Blockdaemon, Figment, and Galaxy Digital Trading Cayman, will run Ethereum validators.

85% of the rewards earned through staking will go to FETH, while 15% will be distributed among service providers, sponsors, custodians, and node operators. Staking is expected to start after the amended registration statement becomes effective. When it does, eligible staking income will be converted into fiat and distributed to shareholders quarterly.

However, Fidelity warns that selling rewards and current holdings of ETH may also be used to pay distributions, which could further reduce FETH's exposure to ETH. This move would likely affect the fund's NAV (Net Asset Value) and share price.