CBOE Seeks SEC Approval to Bring Staking to Ethereum ETFs

• Cboe BZX Exchange filed proposals with the SEC on March 11, 2025, to allow staking in Fidelity’s Ethereum Fund (FETH) and Franklin Ethereum ETF (EZET).
• Staking could enable these ETFs to earn rewards of approximately 3.3% annually, enhancing investor returns.
• This follows a February 2025 filing for the 21Shares Core Ethereum ETF, reflecting a growing trend in the crypto ETF space.
• Approval could bridge decentralized finance (DeFi) with traditional markets, pending SEC regulatory review.

A New Frontier for Ethereum ETFs

On March 11, 2025, the Cboe BZX Exchange made headlines by submitting two proposals to the U.S. Securities and Exchange Commission (SEC) to incorporate staking into spot Ethereum exchange-traded funds (ETFs). The filings target the Fidelity Ethereum Fund (FETH) and the Franklin Ethereum ETF (EZET), aiming to allow these funds to stake their Ethereum (ETH) holdings and generate additional income for investors. This development comes amid growing interest in blending decentralized finance (DeFi) mechanisms with traditional investment vehicles, potentially reshaping how Ethereum ETFs operate in the U.S. market.

What Is Staking and Why It Matters

Staking is a process unique to proof-of-stake (PoS) blockchains like Ethereum, which transitioned from proof-of-work in 2022. In staking, investors lock up their ETH to support network security and validate transactions, earning rewards in return—typically additional ETH. According to Staking Rewards, the current annualized yield for ETH staking is around 3.3%, though this varies with network conditions. For ETFs, this could mean an added layer of returns beyond price appreciation, making them more attractive to both retail and institutional investors.

Cboe’s filings propose that these ETFs would stake ETH “through one or more trusted staking providers,” ensuring compliance with regulatory standards. As stated in the Fidelity filing, “The Sponsor may stake, or cause to be staked, all or a portion of the Trust’s ether through one or more trusted staking providers.” This approach aims to maintain liquidity while tapping into DeFi’s passive income opportunities.

The Proposals: Fidelity and Franklin Take the Lead

The latest proposals build on Cboe’s earlier effort in February 2025, when it sought SEC approval to enable staking for the 21Shares Core Ethereum ETF. The Fidelity filing, submitted on March 11, 2025, notes that staking “would benefit investors and help the Trust to better track the returns associated with holding ether.” Similarly, the Franklin ETF proposal aims to enhance yields, capitalizing on Ethereum’s PoS system, which offers efficiency over its former energy-intensive model.

These ETFs, launched in 2024, initially excluded staking due to SEC concerns about securities law violations. However, the new filings reflect a shifting landscape, possibly influenced by a more crypto-friendly administration under acting SEC Chair Mark Uyeda. If approved, these would be among the first U.S. ETFs to integrate staking, setting a precedent for others like BlackRock and Grayscale, which have also expressed interest.

Market Context and Investor Sentiment

The timing of these proposals coincides with challenges in the Ethereum ETF market. On March 11, 2025, U.S. spot Ethereum ETFs saw their fifth consecutive day of net outflows, totaling $21.6 million, with Fidelity’s FETH losing $9.8 million alone. Despite this, FETH manages nearly $1 billion in assets, per VettaFi data, underscoring its popularity. Posts on X reflect mixed sentiment:

Potential Impact: Bridging DeFi and Traditional Finance

Approval could mark a significant step in merging DeFi with regulated markets. Staking rewards, treated as income, could boost ETF yields by 3-4% annually, per industry estimates, making them competitive with direct crypto staking platforms. For context, Ethereum’s staked supply currently exceeds 33 million ETH—over 27% of its total supply—generating roughly $2 billion in annualized rewards, according to Staking Rewards data from March 2025.

However, risks remain. Staking involves locking assets, which could complicate ETF liquidity, and the SEC’s historical stance against staking services (e.g., actions against Coinbase and Kraken) suggests regulatory scrutiny ahead. Still, Cboe’s “point-and-click” staking method—where ETH stays in custody—aims to address these concerns.

Ethereum Staking (March 2025)

Looking Ahead

The SEC has yet to acknowledge the filings formally, but analysts like Bloomberg’s James Seyffart see potential for approval given recent regulatory shifts. If greenlit, these ETFs could redefine crypto investment vehicles, offering a hybrid of traditional finance stability and DeFi innovation. For now, investors and the crypto community await the SEC’s decision, which could shape Ethereum’s role in institutional portfolios for years to come.