Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the 21Shares Core Ethereum ETF, Shares of Which Have Been Approved by the Commission To List and Trade on the Exchange Pursuant to BZX Rule 14.11(e)(4), 10645-10647 [2025-03030]

Download as PDF Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03027 Filed 2–24–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102450; File No. SR– CboeBZX–2025–025] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the 21Shares Core Ethereum ETF, Shares of Which Have Been Approved by the Commission To List and Trade on the Exchange Pursuant to BZX Rule 14.11(e)(4) February 19, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 12, 2025, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. lotter on DSK11XQN23PROD with NOTICES1 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (‘‘BZX’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) a proposed rule change to amend the 21Shares Core Ethereum ETF (the ‘‘Trust’’), shares (the ‘‘Shares’’) of which have been approved by the Commission to list and trade on the Exchange pursuant to BZX Rule 14.11(e)(4), to permit staking of the Ether held by the Trust. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 6 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:40 Feb 24, 2025 Jkt 265001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Commission approved the Exchange’s proposal to list and trade shares (the ‘‘Shares’’) of the Trust on the Exchange pursuant to Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on May 23, 2024.3 Exchange Rule 14.11(e)(4) governs the listing and trading of Commodity-Based Trust Shares, which means a security (a) that is issued by a trust that holds (1) a specified commodity deposited with the trust, or (2) a specified commodity and, in addition to such specified commodity, cash; (b) that is issued by such trust in a specified aggregate minimum number in return for a deposit of a quantity of the underlying 3 See Securities Exchange Act Release Nos. 100216 (May 22, 2024) 89 FR 46514 (May 29, 2024) (SR–CboeBZX–2023–070) (Notice of Filing of Amendment No. 2 to a Proposed Rule Change to List and Trade Shares of the ARK 21Shares Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares) (‘‘Eth ETP Amendment No. 2’’); 100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (SR–CboeBZX–2023–070) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Shares of Ether-Based Exchange-Traded Products) (the ‘‘Approval Order’’). The Trust was originally named the ARK 21Shares Ethereum ETF, as reflected in the Approval Order. However, the Exchange later submitted an amendment, in part, to rename the Trust to the 21Shares Core Ethereum ETF. See Securities Exchange Act Release No. 100306 (June 10, 2024) 89 FR 50656 (June 14, 2024) (SR–CboeBZX–2024– 050) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the ARK 21Shares Ethereum ETF To Amend the Trust Name and Reflect That the Trust Will No Longer Have a Sub-Adviser) (the ‘‘Trust Name and Sub-Adviser Amendment’’). On September 12, 2024, the Exchange again amended the Eth ETP Amendment No. 2 to add two new custodians to the Eth Trust. See Securities Exchange Act Release No. 101080 (September 18, 2024) 89 FR 77910 (September 24, 2024) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF To Add Two New Custodians to Each Trust) (the ‘‘Custodian Amendment’’). PO 00000 Frm 00023 Fmt 4703 Sfmt 4703 10645 commodity and/or cash; and (c) that, when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such trust which will deliver to the redeeming holder the quantity of the underlying commodity and/or cash. The Shares are issued by the Trust, which was formed as a Delaware statutory trust on September 5, 2023. Based on discussions with the Sponsor, the Exchanges proposes to amend several portions of the Eth ETP Amendment No. 2, as amended, in order to allow the staking of the Ethereum held by the Trust. Specifically, the Exchange is proposing to add the following ‘‘Staking’’ section following the ‘‘The Ether Custodian’’ section 4 of the Eth ETP Amendment No. 2: Staking The Sponsor may, from time to time, stake a portion of the Trust’s ether on behalf of the Trust through one or more trusted staking providers, which may include the Custodian or an affiliate of the Custodian (‘‘Staking Providers’’). However, the Sponsor will not utilize any staking providers that are affiliates of the Sponsor. In consideration for any staking activity in which the Trust may engage, the Trust would receive certain staking rewards of ether tokens, which may be treated as income to the Trust. The Staking Process In the second half of 2020, the Ethereum network began the first of several stages of an upgrade culminating in a transition referred to as the ‘‘Merge.’’ The Merge amended the Ethereum network’s consensus mechanism to a process known as proofof-stake. Proof-of-stake was intended to address the perceived shortcomings of the proof-of-work consensus mechanism in terms of labor intensity and duplicative computational effort expended by validators (known under proof-of-work as ‘‘miners’’). In a proofof-work consensus mechanism, miners effectively compete to be the first in time to solve the cryptographic puzzle that would allow them to be the only validator permitted to validate the block and thus be the only ones to receive the resulting block reward. Miners who are not first in time (and thus are not permitted to be validators) will have effectively expended significant labor and computing power for no gain. In a proof-of-stake mechanism, by contrast, a single validator is randomly selected to solve the cryptographic puzzle needed to validate a block, which it proposes to a committee of other validators, who 4 See E:\FR\FM\25FEN1.SGM Eth ETP Amendment No. 2 at 46522. 25FEN1 10646 Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices vote for whether to include the block (or not). This proof-of-stake system reduces the computational work performed— and energy expended—to validate each block compared to proof-of-work. Unlike proof-of-work, in which miners expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or ‘‘stake’’ coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked. Any malicious activity, such as mining multiple blocks, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the forfeiture or ‘‘slashing’’ of a portion of the staked coins. Proof-ofstake is viewed as more energy efficient and scalable than proof-of-work. New ether is created as a result of the staking of ether by validators. Validators are required to stake ether in order to be selected to perform validation activities and then once selected, as a reward, they earn newly created ether. Validation activities include verifying transactions, storing data, and adding to the Ethereum blockchain. To operate a node on the Ethereum blockchain, a validator must acquire and lock 32 ether by sending a special transaction to the staking contract. This transaction associates the staked ether with a withdrawal address (to unlock the ether and receive any staking rewards) and a validator address (to designate the validator node performing transaction verification). lotter on DSK11XQN23PROD with NOTICES1 Staking by the Sponsor on Behalf of the Trust The Sponsor may, from time to time, stake a portion of the Trust’s ether on behalf of the Trust through one or more Staking Providers. The Sponsor expects to maintain sufficient liquidity in the Trust to satisfy redemptions. The ether staked by the Sponsor on behalf of the Trust will consist exclusively of ether owned by the Trust. The Sponsor’s staking activities on behalf of the Trust will not constitute ‘‘delegated staking’’ and will not form part of a ‘‘staking as a service’’ offering. As further discussed below, the Sponsor believes its activities in relation to staking the ether held by the Trust on behalf of the Trust are materially different from the delegated staking and ‘‘staking as a service’’ activities that the SEC has alleged to involve securities offerings in violation of Section 5 of the VerDate Sep<11>2014 17:40 Feb 24, 2025 Jkt 265001 Securities Act of 1933 (the ‘‘Securities Act’’).5 First, the Sponsor will only stake the ether held by the Trust. The Sponsor will not seek to pool the ether held by the Trust with ether held by other entities (although such pooling may occur at the level of a Staking Provider). Second, the Sponsor will not advertise itself as providing any staking services generally, or promise any specific level of return from staking, or solicit delegated stakes from entities other than the Trust. Third, the Sponsor has stated that it claims no particular expertise, experience, or technical know-how in relation to staking, and is staking the Trust’s ether solely in order to maximize 5 See SEC v. Payward Ventures, Inc. and Payward Trading, Ltd., (Complaint filed February 9, 2023) available at https://www.sec.gov/files/litigation/ complaints/2023/comp-pr2023-25.pdf. (In February 2023, the SEC charged and entered into a settlement order with Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, regarding Kraken’s alleged failure to register the offer and sale of their crypto asset staking-as-aservice program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent. According to the SEC’s complaint, since 2019, Kraken has offered and sold its crypto asset ‘‘staking services’’ to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors. According to the SEC, investors would lock up—or ‘‘stake’’—their crypto tokens with Kraken with the goal of being rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain. The complaint alleged that Kraken touted that its staking investment program offered an easy-to-use platform and benefits that derived from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts.) See also SEC v. Binance Holdings Limited, et al., (Complaint filed June 5, 2023) available at https://www.sec.gov/files/litigation/complaints/ 2023/comp-pr2023-101.pdf. (On June 5, 2023, the SEC filed a complaint charging Binance Holdings Ltd. and certain of its affiliates with a variety of securities law violations, including operating a ‘‘staking-as-a-service’’ program. The SEC’s complaint alleges, among other things, that BAM Trading violated Sections 5(a) and 5(c) of the Securities Act by offering and selling its staking program without a registration statement, and that BAM Trading’s Staking Program was promoted ‘‘as a superior and much easier way to obtain staking rewards by, among other things, pooling the crypto assets of a large number of investors.’’) See also SEC v. Coinbase, Inc. and Coinbase Global (Complaint filed June 6, 2023) available at https://www.sec.gov/ files/litigation/complaints/2023/comp-pr2023102.pdf. (On June 6, 2023, the SEC filed a complaint against Coinbase, Inc. and Coinbase Global in federal district court in the Southern District of New York, alleging, inter alia that Coinbase Inc. violated the Securities Act by failing to register with the SEC the offer and sale of its staking program. The SEC’s complaint alleges that through the Coinbase staking program, investors’ crypto assets are transferred to and pooled by Coinbase (segregated by asset), and subsequently ‘‘staked’’ (or committed) by Coinbase in exchange for rewards, which Coinbase distributes pro rata to investors after paying itself a 25–35% commission. The SEC also alleges that investors understand that Coinbase will expend efforts and leverage its experience and expertise to generate returns.) PO 00000 Frm 00024 Fmt 4703 Sfmt 4703 the Trust’s revenue generation opportunities, and to generate returns for the Trust’s shareholders. Fourth, the Sponsor will not bear or subsidize the risk of slashing on behalf of the Trust. Staking by the Sponsor will not result in the ether held by the Trust moving out of the custody of the Custodian. In order to stake the Trust’s ether, Sponsor will engage in what is known as ‘‘pointand-click staking.’’ Point-and-click staking involves an interface through which an entity can simply initiate staking by pointing and clicking on the ether assets to be staked. This process does not involve the staked ether leaving the wallet at which it is held, and accordingly reduces the risk of loss of ether through theft at the node while the asset is staked (although this process will not reduce the risk of loss of the ether through slashing). Except for the above changes, all other representations in Eth ETP Amendment No. 2, as amended, remain unchanged and will continue to constitute continuing listing requirements. In addition, the Trust will continue to comply with the terms of Amendment No. 2, as amended, and the requirements of Rule 14.11(e)(4). 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.6 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 7 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes the proposed rule change is designed to remove impediments to and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest because it would allow the Trust to stake its ether on behalf of its investors. The Ethereum network allows for staking of its native asset, ether tokens, and permits validators who successfully stake ether 6 15 7 15 E:\FR\FM\25FEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 25FEN1 Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices to receive rewards in the form of more ether tokens. The net beneficiaries are not only validators, or those on behalf of whom they stake ether, but also the Ethereum blockchain itself which grows and is progressively made more secure through the validation of transactions. Staking permits validators to contribute to the network by staking their token to secure the blockchain, facilitating the creation of blocks, and helping process transactions. Validators are compensated for fulfilling this important role through transaction fees and consensus rewards paid by the blockchain itself. Staking through mechanisms such as ‘‘point-and-click’’ staking can also permit the earning of rewards without certain additional risks to the tokens held by the Custodian on behalf of the Trust. As such, not staking the Trust’s ether would amount to waiving the Trust’s right to free additional ether, an act analogous to an equity ETP refusing dividends from the companies it holds. Allowing the Trust to stake its ether would benefit investors and help the Trust to better track the returns associated with holding ether. This would improve the creation and redemption process for both authorized participants and the Trust, increase efficiency, and ultimately benefit the end investors in the Trusts. Except for the addition of staking of the Trust’s ether, all other representations made in Eth ETP Amendment No. 2, as amended, remain unchanged and will continue to constitute continuing listing requirements for the Trust. B. Self-Regulatory Organization’s Statement on Burden on Competition lotter on DSK11XQN23PROD with NOTICES1 The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. As noted above, the proposed amendment is intended to benefit investors and allow the Trust to better track the returns associated with holding ether. The Exchange believes these changes will not impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. VerDate Sep<11>2014 17:40 Feb 24, 2025 Jkt 265001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. by order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBZX–2025–025 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeBZX–2025–025. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and Frm 00025 Fmt 4703 Sfmt 4703 copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeBZX–2025–025 and should be submitted on or before March 18, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03030 Filed 2–24–25; 8:45 am] IV. Solicitation of Comments PO 00000 10647 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102449; File No. SR– CboeBZX–2025–022] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Canary XRP Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares February 19, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 6, 2025, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (‘‘BZX’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) a proposed rule change to list and trade shares of the Canary XRP Trust (the ‘‘Trust’’),3 under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. The text of the proposed rule change is also 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The Trust was formed as a Delaware statutory trust on June 3, 2024, and is operated as a grantor trust for U.S. federal tax purposes. The Trust has no fixed termination date. 1 15 E:\FR\FM\25FEN1.SGM 25FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 90, Number 36 (Tuesday, February 25, 2025)]
[Notices]
[Pages 10645-10647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03030]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102450; File No. SR-CboeBZX-2025-025]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend the 21Shares Core Ethereum 
ETF, Shares of Which Have Been Approved by the Commission To List and 
Trade on the Exchange Pursuant to BZX Rule 14.11(e)(4)

February 19, 2025.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 12, 2025, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to amend the 21Shares Core Ethereum ETF (the 
``Trust''), shares (the ``Shares'') of which have been approved by the 
Commission to list and trade on the Exchange pursuant to BZX Rule 
14.11(e)(4), to permit staking of the Ether held by the Trust.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission approved the Exchange's proposal to list and trade 
shares (the ``Shares'') of the Trust on the Exchange pursuant to 
Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on May 23, 
2024.\3\ Exchange Rule 14.11(e)(4) governs the listing and trading of 
Commodity-Based Trust Shares, which means a security (a) that is issued 
by a trust that holds (1) a specified commodity deposited with the 
trust, or (2) a specified commodity and, in addition to such specified 
commodity, cash; (b) that is issued by such trust in a specified 
aggregate minimum number in return for a deposit of a quantity of the 
underlying commodity and/or cash; and (c) that, when aggregated in the 
same specified minimum number, may be redeemed at a holder's request by 
such trust which will deliver to the redeeming holder the quantity of 
the underlying commodity and/or cash. The Shares are issued by the 
Trust, which was formed as a Delaware statutory trust on September 5, 
2023.
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    \3\ See Securities Exchange Act Release Nos. 100216 (May 22, 
2024) 89 FR 46514 (May 29, 2024) (SR-CboeBZX-2023-070) (Notice of 
Filing of Amendment No. 2 to a Proposed Rule Change to List and 
Trade Shares of the ARK 21Shares Ethereum ETF Under BZX Rule 
14.11(e)(4), Commodity-Based Trust Shares) (``Eth ETP Amendment No. 
2''); 100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (SR-CboeBZX-
2023-070) (Order Granting Accelerated Approval of Proposed Rule 
Changes, as Modified by Amendments Thereto, to List and Trade Shares 
of Ether-Based Exchange-Traded Products) (the ``Approval Order''). 
The Trust was originally named the ARK 21Shares Ethereum ETF, as 
reflected in the Approval Order. However, the Exchange later 
submitted an amendment, in part, to rename the Trust to the 21Shares 
Core Ethereum ETF. See Securities Exchange Act Release No. 100306 
(June 10, 2024) 89 FR 50656 (June 14, 2024) (SR-CboeBZX-2024-050) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend the ARK 21Shares Ethereum ETF To Amend the Trust 
Name and Reflect That the Trust Will No Longer Have a Sub-Adviser) 
(the ``Trust Name and Sub-Adviser Amendment''). On September 12, 
2024, the Exchange again amended the Eth ETP Amendment No. 2 to add 
two new custodians to the Eth Trust. See Securities Exchange Act 
Release No. 101080 (September 18, 2024) 89 FR 77910 (September 24, 
2024) (Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Amend the ARK 21Shares Bitcoin ETF and the 21Shares 
Core Ethereum ETF To Add Two New Custodians to Each Trust) (the 
``Custodian Amendment'').
---------------------------------------------------------------------------

    Based on discussions with the Sponsor, the Exchanges proposes to 
amend several portions of the Eth ETP Amendment No. 2, as amended, in 
order to allow the staking of the Ethereum held by the Trust. 
Specifically, the Exchange is proposing to add the following 
``Staking'' section following the ``The Ether Custodian'' section \4\ 
of the Eth ETP Amendment No. 2:
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    \4\ See Eth ETP Amendment No. 2 at 46522.
---------------------------------------------------------------------------

Staking
    The Sponsor may, from time to time, stake a portion of the Trust's 
ether on behalf of the Trust through one or more trusted staking 
providers, which may include the Custodian or an affiliate of the 
Custodian (``Staking Providers''). However, the Sponsor will not 
utilize any staking providers that are affiliates of the Sponsor. In 
consideration for any staking activity in which the Trust may engage, 
the Trust would receive certain staking rewards of ether tokens, which 
may be treated as income to the Trust.
The Staking Process
    In the second half of 2020, the Ethereum network began the first of 
several stages of an upgrade culminating in a transition referred to as 
the ``Merge.'' The Merge amended the Ethereum network's consensus 
mechanism to a process known as proof-of-stake. Proof-of-stake was 
intended to address the perceived shortcomings of the proof-of-work 
consensus mechanism in terms of labor intensity and duplicative 
computational effort expended by validators (known under proof-of-work 
as ``miners''). In a proof-of-work consensus mechanism, miners 
effectively compete to be the first in time to solve the cryptographic 
puzzle that would allow them to be the only validator permitted to 
validate the block and thus be the only ones to receive the resulting 
block reward. Miners who are not first in time (and thus are not 
permitted to be validators) will have effectively expended significant 
labor and computing power for no gain. In a proof-of-stake mechanism, 
by contrast, a single validator is randomly selected to solve the 
cryptographic puzzle needed to validate a block, which it proposes to a 
committee of other validators, who

[[Page 10646]]

vote for whether to include the block (or not). This proof-of-stake 
system reduces the computational work performed--and energy expended--
to validate each block compared to proof-of-work.
    Unlike proof-of-work, in which miners expend computational 
resources to compete to validate transactions and are rewarded coins in 
proportion to the amount of computational resources expended, in proof-
of-stake, validators risk or ``stake'' coins to compete to be randomly 
selected to validate transactions and are rewarded coins in proportion 
to the amount of coins staked. Any malicious activity, such as mining 
multiple blocks, disagreeing with the eventual consensus or otherwise 
violating protocol rules, results in the forfeiture or ``slashing'' of 
a portion of the staked coins. Proof-of-stake is viewed as more energy 
efficient and scalable than proof-of-work.
    New ether is created as a result of the staking of ether by 
validators. Validators are required to stake ether in order to be 
selected to perform validation activities and then once selected, as a 
reward, they earn newly created ether. Validation activities include 
verifying transactions, storing data, and adding to the Ethereum 
blockchain.
    To operate a node on the Ethereum blockchain, a validator must 
acquire and lock 32 ether by sending a special transaction to the 
staking contract. This transaction associates the staked ether with a 
withdrawal address (to unlock the ether and receive any staking 
rewards) and a validator address (to designate the validator node 
performing transaction verification).
Staking by the Sponsor on Behalf of the Trust
    The Sponsor may, from time to time, stake a portion of the Trust's 
ether on behalf of the Trust through one or more Staking Providers. The 
Sponsor expects to maintain sufficient liquidity in the Trust to 
satisfy redemptions. The ether staked by the Sponsor on behalf of the 
Trust will consist exclusively of ether owned by the Trust. The 
Sponsor's staking activities on behalf of the Trust will not constitute 
``delegated staking'' and will not form part of a ``staking as a 
service'' offering.
    As further discussed below, the Sponsor believes its activities in 
relation to staking the ether held by the Trust on behalf of the Trust 
are materially different from the delegated staking and ``staking as a 
service'' activities that the SEC has alleged to involve securities 
offerings in violation of Section 5 of the Securities Act of 1933 (the 
``Securities Act'').\5\
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    \5\ See SEC v. Payward Ventures, Inc. and Payward Trading, Ltd., 
(Complaint filed February 9, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-25.pdf. (In February 
2023, the SEC charged and entered into a settlement order with 
Payward Ventures, Inc. and Payward Trading Ltd., both commonly known 
as Kraken, regarding Kraken's alleged failure to register the offer 
and sale of their crypto asset staking-as-a-service program, whereby 
investors transfer crypto assets to Kraken for staking in exchange 
for advertised annual investment returns of as much as 21 percent. 
According to the SEC's complaint, since 2019, Kraken has offered and 
sold its crypto asset ``staking services'' to the general public, 
whereby Kraken pools certain crypto assets transferred by investors 
and stakes them on behalf of those investors. According to the SEC, 
investors would lock up--or ``stake''--their crypto tokens with 
Kraken with the goal of being rewarded with new tokens when their 
staked crypto tokens become part of the process for validating data 
for the blockchain. The complaint alleged that Kraken touted that 
its staking investment program offered an easy-to-use platform and 
benefits that derived from Kraken's efforts on behalf of investors, 
including Kraken's strategies to obtain regular investment returns 
and payouts.) See also SEC v. Binance Holdings Limited, et al., 
(Complaint filed June 5, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf. (On June 5, 
2023, the SEC filed a complaint charging Binance Holdings Ltd. and 
certain of its affiliates with a variety of securities law 
violations, including operating a ``staking-as-a-service'' program. 
The SEC's complaint alleges, among other things, that BAM Trading 
violated Sections 5(a) and 5(c) of the Securities Act by offering 
and selling its staking program without a registration statement, 
and that BAM Trading's Staking Program was promoted ``as a superior 
and much easier way to obtain staking rewards by, among other 
things, pooling the crypto assets of a large number of investors.'') 
See also SEC v. Coinbase, Inc. and Coinbase Global (Complaint filed 
June 6, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-102.pdf. (On June 6, 2023, the SEC filed 
a complaint against Coinbase, Inc. and Coinbase Global in federal 
district court in the Southern District of New York, alleging, inter 
alia that Coinbase Inc. violated the Securities Act by failing to 
register with the SEC the offer and sale of its staking program. The 
SEC's complaint alleges that through the Coinbase staking program, 
investors' crypto assets are transferred to and pooled by Coinbase 
(segregated by asset), and subsequently ``staked'' (or committed) by 
Coinbase in exchange for rewards, which Coinbase distributes pro 
rata to investors after paying itself a 25-35% commission. The SEC 
also alleges that investors understand that Coinbase will expend 
efforts and leverage its experience and expertise to generate 
returns.)
---------------------------------------------------------------------------

    First, the Sponsor will only stake the ether held by the Trust. The 
Sponsor will not seek to pool the ether held by the Trust with ether 
held by other entities (although such pooling may occur at the level of 
a Staking Provider). Second, the Sponsor will not advertise itself as 
providing any staking services generally, or promise any specific level 
of return from staking, or solicit delegated stakes from entities other 
than the Trust. Third, the Sponsor has stated that it claims no 
particular expertise, experience, or technical know-how in relation to 
staking, and is staking the Trust's ether solely in order to maximize 
the Trust's revenue generation opportunities, and to generate returns 
for the Trust's shareholders. Fourth, the Sponsor will not bear or 
subsidize the risk of slashing on behalf of the Trust.
    Staking by the Sponsor will not result in the ether held by the 
Trust moving out of the custody of the Custodian. In order to stake the 
Trust's ether, Sponsor will engage in what is known as ``point-and-
click staking.'' Point-and-click staking involves an interface through 
which an entity can simply initiate staking by pointing and clicking on 
the ether assets to be staked. This process does not involve the staked 
ether leaving the wallet at which it is held, and accordingly reduces 
the risk of loss of ether through theft at the node while the asset is 
staked (although this process will not reduce the risk of loss of the 
ether through slashing).
    Except for the above changes, all other representations in Eth ETP 
Amendment No. 2, as amended, remain unchanged and will continue to 
constitute continuing listing requirements. In addition, the Trust will 
continue to comply with the terms of Amendment No. 2, as amended, and 
the requirements of Rule 14.11(e)(4).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change is designed to 
remove impediments to and perfect the mechanism of a free and open 
market and, in general, to protect investors and the public interest 
because it would allow the Trust to stake its ether on behalf of its 
investors. The Ethereum network allows for staking of its native asset, 
ether tokens, and permits validators who successfully stake ether

[[Page 10647]]

to receive rewards in the form of more ether tokens. The net 
beneficiaries are not only validators, or those on behalf of whom they 
stake ether, but also the Ethereum blockchain itself which grows and is 
progressively made more secure through the validation of transactions. 
Staking permits validators to contribute to the network by staking 
their token to secure the blockchain, facilitating the creation of 
blocks, and helping process transactions. Validators are compensated 
for fulfilling this important role through transaction fees and 
consensus rewards paid by the blockchain itself.
    Staking through mechanisms such as ``point-and-click'' staking can 
also permit the earning of rewards without certain additional risks to 
the tokens held by the Custodian on behalf of the Trust. As such, not 
staking the Trust's ether would amount to waiving the Trust's right to 
free additional ether, an act analogous to an equity ETP refusing 
dividends from the companies it holds. Allowing the Trust to stake its 
ether would benefit investors and help the Trust to better track the 
returns associated with holding ether. This would improve the creation 
and redemption process for both authorized participants and the Trust, 
increase efficiency, and ultimately benefit the end investors in the 
Trusts.
    Except for the addition of staking of the Trust's ether, all other 
representations made in Eth ETP Amendment No. 2, as amended, remain 
unchanged and will continue to constitute continuing listing 
requirements for the Trust.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. As noted above, the proposed 
amendment is intended to benefit investors and allow the Trust to 
better track the returns associated with holding ether. The Exchange 
believes these changes will not impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2025-025 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeBZX-2025-025. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2025-025 and should 
be submitted on or before March 18, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03030 Filed 2-24-25; 8:45 am]
BILLING CODE 8011-01-P

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