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 Fidelity Ethereum Fund To Permit Staking, 12626-12628 [2025-04330]

Download as PDF 12626 Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices publication of the notice for this proposed rule change is April 12, 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 27, 2025, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CboeBZX–2025–018). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–04345 Filed 3–17–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102643; File No. SR– CboeBZX–2025–038] 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 Fidelity Ethereum Fund To Permit Staking March 12, 2025. khammond on DSK9W7S144PROD with NOTICES 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 11, 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 amend the Fidelity Ethereum Fund (the ‘‘Trust’’), shares (the ‘‘Shares’’) of which have been 5 Id. 6 17 CFR 200.30–3(a)(31). 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 approved by the Commission to list and trade on the Exchange pursuant to BZX Rule 14.11(e)(4), to permit staking of 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 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 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 3 See Securities Exchange Act Release Nos. 100215 (May 22, 2024) 89 FR 46478 (May 29, 2024) (SR–CboeBZX–2023–095) (Notice of Filing of Amendment No. 2 to a Proposed Rule Change to List and Trade Shares of the Fidelity Ethereum Fund Under BZX Rule 14.11(e)(4), CommodityBased 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’’). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 and/or cash. The Shares are issued by the Trust, which was formed as a Delaware statutory trust on October 31, 2023. Based on discussions with the Sponsor, the Exchange proposes to amend several portions of the Eth ETP Amendment No. 2, as amended, in order to allow the staking of ether held by the Trust.4 First, the Exchange proposes to delete the following representation in the Eth ETP Amendment No. 2 that provides that the Fund will not engage in staking: 5 Neither the Trust, nor the Sponsor, nor the Custodian, nor any other person associated with the Trust will, directly or indirectly, engage in action where any portion of the Trust’s ETH becomes subject to the Ethereum proof-of-stake validation or is used to earn additional ETH or generate income or other earnings. The Exchange also proposes to add the following ‘‘Staking’’ section following the ‘‘The Custodian’’ section 6 of the Eth ETP Amendment No. 2: Staking 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 (‘‘Staking Providers’’). In consideration for any staking activity in which the Trust may engage, the Trust would receive all or a portion of the staking rewards generated by the Staking Provider, which may be treated as income to the Trust. The Staking Process On September 15, 2022, the Ethereum network upgraded from proof-of-work to a proof-of-stake consensus mechanism in a transition commonly referred to as ‘‘the Merge’’. Proof-of-stake was intended to address the perceived shortcomings of the proof-of-work related to energy usage and duplicative computational effort expended by network contributors (known under proofof-work as ‘‘miners’’ and under proof-of-stake as ‘‘validators’’). In a proof-of-work mechanism, miners compete to be the first to solve the cryptographic puzzle. The winner then becomes the only miner permitted to process the block and, in turn, the one to receive the respective rewards. Miners who are not first in time (and thus are not permitted to process the next block) will have effectively expended significant labor and computing power for no gain. Under a proof-of-stake mechanism, several validators can be involved in the processing of a block. One validator may be selected to propose a block while other validators verify the content of that block. The corresponding rewards vary per role performed. 4 The Exchange has also filed a separate proposed rule change to amend portions of the Eth ETP Amendment No. 2 in order to allow for in-kind creation and redemptions. See Securities Exchange Act Release No. 34–102451 (February 19, 2025); File No. SR–CboeBZX–2025–023). 5 See Eth ETP Amendment No. 2 at 46487. 6 See Eth ETP Amendment No. 2 at 46488. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices Additionally, validators do not compete based on computational power like miners do. Instead, the amount of capital each validator has committed, in the form of the blockchain’s native currency, is what contributes to the selection. This proof-ofstake system reduces the computational work performed—and energy expended—to validate each block compared to proof-ofwork. Under proof-of-stake, validators staking a minimum of 32 ether are randomly selected by an Ethereum Network algorithm to process transactions. Entities running multiple validator nodes will therefore experience an increased likelihood of any one of their validators being selected based on their share of validators compared to the total active validators on the network. Any malicious activity, such as double signing, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the forfeiture or ‘‘slashing’’ of a portion of the staked ether. To operate a node on the Ethereum blockchain, a validator must acquire and lock at least 32 ether by sending a deposit 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 Trust The Sponsor may stake, or cause to be staked, all or 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 and current liabilities. Any 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 activities that the SEC has alleged to involve securities offerings in violation of Section 5 of the Securities Act of 1933 (the ‘‘Securities Act’’).7 7 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 VerDate Sep<11>2014 16:20 Mar 17, 2025 Jkt 265001 First, the Sponsor will only stake, or cause to be staked, ether held by the Trust. The Sponsor will not seek to pool ether held by the Trust with ether held by other entities in order to stake its assets in a node. Second, the Sponsor will not advertise itself as providing any staking services generally, or promise or promote any specific level of return from staking, or solicit delegated stakes from entities other than the Trust. Third, the Sponsor will stake, or cause to be staked, the Trust’s ether solely in order to preserve the assets of the Trust by contributing to the security of the network and to generate returns for the Trust’s shareholders. [Staking by the Sponsor will not result in ether held by the Trust moving out of the control of the Custodian.] The staking contract can only release ether, either remaining principal or rewards, to the withdrawal address specified when the validator is created. The private keys associated with this withdrawal address are controlled by the Custodian. Additionally, the Sponsor will engage with Staking Provider(s) to execute software and hardware necessary for a live validator to perform its duties. Even if the validators are unable to perform these duties due to complete failure or disruption of the hardware, the Custodian is able to retrieve ether from the associated validators. Except for the above changes, all other representations in the 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). 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. On February 27, 2025, the SEC filed to dismiss its lawsuit.) PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 12627 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.8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 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, and permits validators who successfully stake ether to receive block rewards. 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 network security and functionality. Validators are compensated for fulfilling this important role through block rewards. 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 Trust. Except for the addition of staking of the Trust’s ether and the changes discussed herein, all other representations made in the Eth ETP Amendment No. 2, as amended, remain unchanged and will continue to constitute continuing listing requirements for the Trust. 8 15 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). E:\FR\FM\18MRN1.SGM 18MRN1 12628 Federal Register / Vol. 90, No. 51 / Tuesday, March 18, 2025 / Notices 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: khammond on DSK9W7S144PROD with NOTICES 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–2025–038 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–2025–038. 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 VerDate Sep<11>2014 16:20 Mar 17, 2025 Jkt 265001 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–2025–038 and should be submitted on or before April 8, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–04330 Filed 3–17–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102616; File No. SR–NYSE– 2025–03] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Connectivity Fee Schedule and NYSE Propriety Market Data Fees March 12, 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 27, 2025, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Item I below, which Item has been 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 substantially prepared by the Exchange. The Exchange has designated this proposal for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f) thereunder.4 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 The Exchange proposes to amend the Connectivity Fee Schedule and NYSE Propriety Market Data Fees (‘‘Schedule of Market Data Fees’’) to reflect the proposed name change of NYSE Chicago, Inc. to NYSE Texas, Inc. The proposed rule change, including the Exchange’s statement of the purpose of, and statutory basis for, the proposed rule change, is available on the Exchange’s website at www.nyse.com and on the Commission’s website at https://www.sec.gov/rules-regulations/ self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-NYSE-202503. II. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 5 and Rule 19b– 4(f)(6) 6 thereunder. Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; or (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 7 and Rule 19b– 4(f)(6) 8 thereunder. 3 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 240.19b–4(f)(6). 7 15 U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as 4 17 E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 90, Number 51 (Tuesday, March 18, 2025)]
[Notices]
[Pages 12626-12628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04330]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102643; File No. SR-CboeBZX-2025-038]


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 Fidelity Ethereum Fund 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 11, 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 Fidelity Ethereum Fund (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 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 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 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 October 31, 
2023.
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    \3\ See Securities Exchange Act Release Nos. 100215 (May 22, 
2024) 89 FR 46478 (May 29, 2024) (SR-CboeBZX-2023-095) (Notice of 
Filing of Amendment No. 2 to a Proposed Rule Change to List and 
Trade Shares of the Fidelity Ethereum Fund 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'').
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    Based on discussions with the Sponsor, the Exchange proposes to 
amend several portions of the Eth ETP Amendment No. 2, as amended, in 
order to allow the staking of ether held by the Trust.\4\ First, the 
Exchange proposes to delete the following representation in the Eth ETP 
Amendment No. 2 that provides that the Fund will not engage in staking: 
\5\
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    \4\ The Exchange has also filed a separate proposed rule change 
to amend portions of the Eth ETP Amendment No. 2 in order to allow 
for in-kind creation and redemptions. See Securities Exchange Act 
Release No. 34-102451 (February 19, 2025); File No. SR-CboeBZX-2025-
023).
    \5\ See Eth ETP Amendment No. 2 at 46487.

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

The Exchange also proposes to add the following ``Staking'' section 
following the ``The Custodian'' section \6\ of the Eth ETP Amendment 
No. 2:
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    \6\ See Eth ETP Amendment No. 2 at 46488.
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Staking

    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 
(``Staking Providers''). In consideration for any staking activity 
in which the Trust may engage, the Trust would receive all or a 
portion of the staking rewards generated by the Staking Provider, 
which may be treated as income to the Trust.

The Staking Process

    On September 15, 2022, the Ethereum network upgraded from proof-
of-work to a proof-of-stake consensus mechanism in a transition 
commonly referred to as ``the Merge''. Proof-of-stake was intended 
to address the perceived shortcomings of the proof-of-work related 
to energy usage and duplicative computational effort expended by 
network contributors (known under proof-of-work as ``miners'' and 
under proof-of-stake as ``validators''). In a proof-of-work 
mechanism, miners compete to be the first to solve the cryptographic 
puzzle. The winner then becomes the only miner permitted to process 
the block and, in turn, the one to receive the respective rewards. 
Miners who are not first in time (and thus are not permitted to 
process the next block) will have effectively expended significant 
labor and computing power for no gain. Under a proof-of-stake 
mechanism, several validators can be involved in the processing of a 
block. One validator may be selected to propose a block while other 
validators verify the content of that block. The corresponding 
rewards vary per role performed.

[[Page 12627]]

Additionally, validators do not compete based on computational power 
like miners do. Instead, the amount of capital each validator has 
committed, in the form of the blockchain's native currency, is what 
contributes to the selection. This proof-of-stake system reduces the 
computational work performed--and energy expended--to validate each 
block compared to proof-of-work.
    Under proof-of-stake, validators staking a minimum of 32 ether 
are randomly selected by an Ethereum Network algorithm to process 
transactions. Entities running multiple validator nodes will 
therefore experience an increased likelihood of any one of their 
validators being selected based on their share of validators 
compared to the total active validators on the network. Any 
malicious activity, such as double signing, disagreeing with the 
eventual consensus or otherwise violating protocol rules, results in 
the forfeiture or ``slashing'' of a portion of the staked ether.
    To operate a node on the Ethereum blockchain, a validator must 
acquire and lock at least 32 ether by sending a deposit 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 stake, or cause to be staked, all or 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 and current 
liabilities. Any 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 
activities that the SEC has alleged to involve securities offerings 
in violation of Section 5 of the Securities Act of 1933 (the 
``Securities Act'').\7\
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    \7\ 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. On February 27, 2025, the SEC filed to dismiss its 
lawsuit.)
---------------------------------------------------------------------------

    First, the Sponsor will only stake, or cause to be staked, ether 
held by the Trust. The Sponsor will not seek to pool ether held by 
the Trust with ether held by other entities in order to stake its 
assets in a node. Second, the Sponsor will not advertise itself as 
providing any staking services generally, or promise or promote any 
specific level of return from staking, or solicit delegated stakes 
from entities other than the Trust. Third, the Sponsor will stake, 
or cause to be staked, the Trust's ether solely in order to preserve 
the assets of the Trust by contributing to the security of the 
network and to generate returns for the Trust's shareholders.
    [Staking by the Sponsor will not result in ether held by the 
Trust moving out of the control of the Custodian.] The staking 
contract can only release ether, either remaining principal or 
rewards, to the withdrawal address specified when the validator is 
created. The private keys associated with this withdrawal address 
are controlled by the Custodian. Additionally, the Sponsor will 
engage with Staking Provider(s) to execute software and hardware 
necessary for a live validator to perform its duties. Even if the 
validators are unable to perform these duties due to complete 
failure or disruption of the hardware, the Custodian is able to 
retrieve ether from the associated validators.

    Except for the above changes, all other representations in the 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.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 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 Trust to stake its ether on behalf of its 
investors. The Ethereum network allows for staking of its native asset, 
ether, and permits validators who successfully stake ether to receive 
block rewards. 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 
network security and functionality. Validators are compensated for 
fulfilling this important role through block rewards.
    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 Trust.
    Except for the addition of staking of the Trust's ether and the 
changes discussed herein, all other representations made in the Eth ETP 
Amendment No. 2, as amended, remain unchanged and will continue to 
constitute continuing listing requirements for the Trust.

[[Page 12628]]

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-2025-038 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-2025-038. 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-2025-038 and should 
be submitted on or before April 8, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-04330 Filed 3-17-25; 8:45 am]
BILLING CODE 8011-01-P

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