The general Ethereum ETF applications are facing challenges due to the network's staking model and classification as security/commodity.
ARK Invest and 21Shares recently modified their proposals by removing staking rewards to avoid this hurdle.
The update to their filing might be a response to unofficial SEC feedback.
So far, several issuers have faced delays and rejections from the SEC for their ETF applications including BlackRock, Invesco-Galaxy and others.
Decisions on VanEck's and ARK-21Shares's applications are expected in late May, with the recent staking removal increasing the odds of approval
The issue of the Ethereum ETF approvals has been under heated speculation for months now, especially after the approval of the first 11 spot Bitcoin ETFs in January.
The spot Bitcoin ETFs did wonders for the price of Bitcoin before, during and after the launch of these ETFs, leading speculators to clamour for something similar for Ether.
However, there are many issues with Ethereum and a possible approval, including its classification as both a security and a commodity, as well as its staking model.
Two of the biggest hurdles for the approval of an Ethereum ETF include its classification as either a security or a commodity, as well as the network’s Proof of Stake consensus model.
To put things simply, the idea that Ethereum can be staked to earn rewards makes it very hard for the Securities and Exchange Commission to determine whether these rewards constitute securities.
In essence, if the SEC classifies Ethereum as a security because of this staking functionality, the entire ecosystem might come under stricter regulations—meaning that an Ethereum ETF might not be on the horizon after all.
To this end, ARK Invest and 21Shares, two of the biggest companies vying for Ether ETF approval have just edited their proposals.
In this update, these companies have removed plans for staking Ether, making it slightly easier for the SEC to make a decision.
The original filing from 7 February included a feature on the potential ETFs, that would allow investors to gain rewards from staking Ethereum.
However, on 10 May, both of these companies updated their filing, removing this clause and suggesting a pivot away from staking as a source of income for the ETF.
According to insights from Bloomberg ETF analyst, Eric Balchunas, this most recent update might be as a result of feedback from the SEC, even though there have been no official comments from both.
Why was there an update?
Overall, the removal of this clause might have been an attempt from Ark Invest and 21 Shares to streamline their application and avoid reasons why the SEC might want to reject their original filing.
So far, there have been several issuers including Grayscale, Franklin Templeton, VanEck, and BlackRock, all of which have been through the SEC’s pattern of delays and then rejection.
So far, the general decisions on VanEck’s and ARK-21Shares’s applications are due in a few weeks, between May 23 and May 24, respectively.
The question now remains: how close are we to an Ethereum ETF approval?
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