Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Rule Governing the Listing and Trading of Shares of the Franklin Crypto Index ETF To Permit Staking, 12621-12623 [2025-04327]

Download as PDF Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–04324 Filed 3–17–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102639; File No. SR– CboeBZX–2025–037] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Rule Governing the Listing and Trading of Shares of the Franklin Crypto Index ETF To Permit Staking March 12, 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 March 10, 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. khammond on DSK9W7S144PROD with NOTICES 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 Franklin Crypto Index ETF (the ‘‘Fund’’), a series of the Franklin Crypto Trust (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 Fund. 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. 7 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 16:20 Mar 17, 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 the 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 Fund on the Exchange pursuant to Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on December 19, 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 Fund, which is a series of the Trust. The Trust was formed as a Delaware statutory trust on August 13, 2024. Based on discussions with the Sponsor, the Exchange proposes to amend several portions of the Crypto 3 See Securities Exchange Act Release Nos. 101963 (December 18, 2024) 89 FR 105109 (December 26, 2024) (SR–CboeBZX–2024–091) (Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the Franklin Crypto Index ETF, a Series of the Franklin Crypto Trust, Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares) (‘‘Crypto Index ETP Amendment No. 1’’); 101998 (December 19, 2024) 89 FR 106707 (December 30, 2024) (SR– CboeBZX–2024–028) (Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Hashdex Nasdaq Crypto Index US ETF and Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Franklin Crypto Index ETF, a Series of the Franklin Crypto Trust) (the ‘‘Crypto Index ETF Approval Order’’). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 12621 Index ETP Amendment No. 1 in order to allow the staking of the ether held by the Fund. First, the Exchange is proposes to delete the following representation in the Crypto Index ETP Amendment No. 1 that provides that the Fund will not engage in staking: 4 Neither the Trust or the Fund, nor the Sponsor, nor the Custodian, nor any other person associated with the Trust or Fund will, directly or indirectly, engage in action where any portion of the Fund’s ether becomes subject to the Ethereum proof-ofstake validation or is used to earn additional ether or generate income or other earnings. The Exchange also proposes to add the following ‘‘Staking’’ section following the ‘‘The Custodian’’ section 5 of the Crypto Index ETP Amendment No. 1: Staking The Sponsor may, from time to time, stake a portion of the Fund’s ether on behalf of the Fund through one or more Trusted staking providers, which may include the Custodian, an affiliate of the Custodian, or an affiliate of the Sponsor (‘‘Staking Providers’’). In consideration for any staking activity in which the Fund may engage, the Fund would receive certain staking rewards of ether tokens, which may be treated as income to the Fund. 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-ofstake 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 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 4 See Crypto Index ETP Amendment No. 1 at 105111. 5 See Crypto Index ETP Amendment No. 1 at 105113. E:\FR\FM\18MRN1.SGM 18MRN1 12622 Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices computational resources expended, in proofof-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). khammond on DSK9W7S144PROD with NOTICES Staking by the Sponsor on Behalf of the Fund The Sponsor may, from time to time, stake a portion of the Fund’s ether on behalf of the Fund through one or more Staking Providers. The Sponsor expects to maintain sufficient liquidity in the Fund to satisfy redemptions. The ether staked by the Sponsor on behalf of the Fund will consist exclusively of ether owned by the Fund. The Sponsor’s staking activities on behalf of the Fund 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 Fund on behalf of the Fund 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’’).6 6 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 VerDate Sep<11>2014 16:20 Mar 17, 2025 Jkt 265001 First, the Sponsor will only stake the ether held by the Fund. The Sponsor will not seek to pool the ether held by the Fund 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 Fund. Third, the Sponsor has stated that it is staking the Fund’s ether solely in order to maximize the Fund’s revenue generation opportunities, and to generate returns for the Fund’s shareholders. Fourth, the Sponsor will not bear or subsidize the risk of slashing on behalf of the Fund. Staking by the Sponsor will not result in the ether held by the Fund moving out of the custody of the Custodian. In order to stake the Fund’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 in 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 Crypto Index ETP Amendment No. 1 remain unchanged and will continue to constitute continuing listing requirements. In addition, the Fund will continue to comply with the terms of Crypto Index ETP Amendment No. 1 and the requirements of Rule 14.11(e)(4). 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 00100 Fmt 4703 Sfmt 4703 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.7 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 8 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 Fund 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 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 tokens 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 Fund. As such, not staking the Fund’s ether would amount to waiving the Fund’s right to free additional ether, an act analogous to an equity ETP refusing dividends from the companies it holds. Allowing the Fund to stake its ether would benefit investors and help the Fund to better track the returns associated with holding ether. This would improve the creation and 7 15 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices redemption process for both authorized participants and the Fund, increase efficiency, and ultimately benefit the end investors in the Funds. Except for the addition of staking of the Fund’s ether and the changes discussed herein, all other representations made in Crypto Index ETP Amendment No. 1 remain unchanged and will continue to constitute continuing listing requirements for the Fund. 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 Fund 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. khammond on DSK9W7S144PROD with NOTICES 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: 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–2025–037. 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–2025–037 and should be submitted on or before April 8, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–04327 Filed 3–17–25; 8:45 am] BILLING CODE 8011–01–P 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–2025–037 on the subject line. VerDate Sep<11>2014 16:20 Mar 17, 2025 Jkt 265001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102626; File No. SR– CboeEDGX–2025–005] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change, as Modified by Amendment No. 1, To List Options on the Fidelity Ethereum Fund March 12, 2025. On January 24, 2025, Cboe EDGX Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list options on the Fidelity Ethereum Fund. On February 3, 2025 the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on February 13, 2025.3 The Commission received no comments regarding the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is March 30, 2025. The Commission is extending this 45day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates May 14, 2025, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 102374 (Feb. 7, 2025), 90 FR 9570. 4 15 U.S.C. 78s(b)(2). 5 Id. 2 17 9 PO 00000 17 CFR 200.30–3(a)(12). Frm 00101 Fmt 4703 12623 Sfmt 4703 E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 90, Number 51 (Tuesday, March 18, 2025)]
[Notices]
[Pages 12621-12623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04327]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102639; File No. SR-CboeBZX-2025-037]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend the Rule Governing the 
Listing and Trading of Shares of the Franklin Crypto Index ETF To 
Permit Staking

March 12, 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 March 10, 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.
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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 Franklin Crypto Index ETF (the 
``Fund''), a series of the Franklin Crypto Trust (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 Fund.
    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 the 
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 Fund on the Exchange pursuant to 
Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on December 
19, 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 Fund, which is a series of the Trust. The Trust was 
formed as a Delaware statutory trust on August 13, 2024.
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    \3\ See Securities Exchange Act Release Nos. 101963 (December 
18, 2024) 89 FR 105109 (December 26, 2024) (SR-CboeBZX-2024-091) 
(Notice of Filing of Amendment No. 1 to a Proposed Rule Change To 
List and Trade Shares of the Franklin Crypto Index ETF, a Series of 
the Franklin Crypto Trust, Under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares) (``Crypto Index ETP Amendment No. 1''); 101998 
(December 19, 2024) 89 FR 106707 (December 30, 2024) (SR-CboeBZX-
2024-028) (Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the Hashdex 
Nasdaq Crypto Index US ETF and Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and 
Trade Shares of the Franklin Crypto Index ETF, a Series of the 
Franklin Crypto Trust) (the ``Crypto Index ETF Approval Order'').
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    Based on discussions with the Sponsor, the Exchange proposes to 
amend several portions of the Crypto Index ETP Amendment No. 1 in order 
to allow the staking of the ether held by the Fund. First, the Exchange 
is proposes to delete the following representation in the Crypto Index 
ETP Amendment No. 1 that provides that the Fund will not engage in 
staking: \4\
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    \4\ See Crypto Index ETP Amendment No. 1 at 105111.

    Neither the Trust or the Fund, nor the Sponsor, nor the 
Custodian, nor any other person associated with the Trust or Fund 
will, directly or indirectly, engage in action where any portion of 
the Fund's ether becomes subject to the Ethereum proof-of-stake 
validation or is used to earn additional ether or generate income or 
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other earnings.

The Exchange also proposes to add the following ``Staking'' section 
following the ``The Custodian'' section \5\ of the Crypto Index ETP 
Amendment No. 1:
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    \5\ See Crypto Index ETP Amendment No. 1 at 105113.

Staking

    The Sponsor may, from time to time, stake a portion of the 
Fund's ether on behalf of the Fund through one or more Trusted 
staking providers, which may include the Custodian, an affiliate of 
the Custodian, or an affiliate of the Sponsor (``Staking 
Providers''). In consideration for any staking activity in which the 
Fund may engage, the Fund would receive certain staking rewards of 
ether tokens, which may be treated as income to the Fund.

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 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

[[Page 12622]]

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 Fund

    The Sponsor may, from time to time, stake a portion of the 
Fund's ether on behalf of the Fund through one or more Staking 
Providers. The Sponsor expects to maintain sufficient liquidity in 
the Fund to satisfy redemptions. The ether staked by the Sponsor on 
behalf of the Fund will consist exclusively of ether owned by the 
Fund. The Sponsor's staking activities on behalf of the Fund 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 Fund on behalf of the 
Fund 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'').\6\
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    \6\ 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.)
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    First, the Sponsor will only stake the ether held by the Fund. 
The Sponsor will not seek to pool the ether held by the Fund 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 Fund. Third, the Sponsor has stated 
that it is staking the Fund's ether solely in order to maximize the 
Fund's revenue generation opportunities, and to generate returns for 
the Fund's shareholders. Fourth, the Sponsor will not bear or 
subsidize the risk of slashing on behalf of the Fund.
    Staking by the Sponsor will not result in the ether held by the 
Fund moving out of the custody of the Custodian. In order to stake 
the Fund'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 in 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 Crypto 
Index ETP Amendment No. 1 remain unchanged and will continue to 
constitute continuing listing requirements. In addition, the Fund will 
continue to comply with the terms of Crypto Index ETP Amendment No. 1 
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.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 Fund 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 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 tokens 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 Fund. As such, not 
staking the Fund's ether would amount to waiving the Fund's right to 
free additional ether, an act analogous to an equity ETP refusing 
dividends from the companies it holds. Allowing the Fund to stake its 
ether would benefit investors and help the Fund to better track the 
returns associated with holding ether. This would improve the creation 
and

[[Page 12623]]

redemption process for both authorized participants and the Fund, 
increase efficiency, and ultimately benefit the end investors in the 
Funds.
    Except for the addition of staking of the Fund's ether and the 
changes discussed herein, all other representations made in Crypto 
Index ETP Amendment No. 1 remain unchanged and will continue to 
constitute continuing listing requirements for the Fund.

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 Fund 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-2025-037 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-2025-037. 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-2025-037 and should 
be submitted on or before April 8, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-04327 Filed 3-17-25; 8:45 am]
BILLING CODE 8011-01-P

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