Fidelity to add staking, payouts to $898M ether ETF
Fidelity is joining rivals in unlocking yield for its ether ETF investors after a recent IRS ruling cleared the regulatory path for staking by crypto trusts.
Fidelity filed an amended registration statement to introduce ether staking and quarterly cash distributions to its Fidelity Ethereum Fund. The vehicle currently holds $898 million in net assets. Under the proposed structure, the fund could stake up to 100% of its ether holdings under normal market conditions, though it has set no minimum staking threshold.
The fund will retain a portion of its ETH un-staked to manage operational demands. This liquidity buffer is intended to cover potential investor redemptions, routine fund expenses, and other general liquidity needs. This approach balances yield generation with the operational realities of managing a large spot crypto fund.
Fidelity detailed a clear split for any rewards generated through the staking process. The fund itself would keep 85% of gross staking rewards. The remaining 15% of those gross rewards will be directed to various service providers, including the fund sponsor, its custodians, and the external node operators tasked with validating transactions.
Blockdaemon, Figment, and Galaxy are named in the filing as the trust’s designated node operators. Once the gross rewards are split, the net staking rewards retained by the fund will not immediately flow to investors. Instead, these net rewards will first be used to cover the fund's standard operating expenses.
Any remaining capital after expenses are paid will be used to fund the quarterly cash distributions. This payout mechanism is a direct response to regulatory requirements. An IRS safe harbor bulletin issued in November 2025 explicitly mandates that qualifying crypto trusts must distribute their net staking rewards at least quarterly if they want to maintain their favorable grantor-trust tax status.
To facilitate these mandatory cash payouts, Fidelity retains the option to sell portions of its underlying ETH holdings. The asset manager noted in the filing that it may liquidate some of its ether reserves to raise the fiat cash necessary to meet these distribution obligations.
Fidelity’s pivot reflects a broader strategic shift across the spot ether ETF market following the IRS clarification. By embedding staking directly into the fund, Fidelity joins Grayscale and 21Shares, which have already implemented similar upgrades to their existing ether products.
BlackRock has approached the yield opportunity differently, choosing to launch an entirely separate staking product rather than altering its primary spot ether ETF. For market professionals, the divergence in product structures highlights how major asset managers are interpreting the new regulatory landscape to capture staking yield while navigating tax and operational constraints.
