ARK 21Shares adds cash creation and Ether shares to the Ethereum ETF

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ARK 21Shares has revamped its Ethereum Exchange-Traded Fund (ETF) application and revamped its funding model with new provisions for Ether staking.

Bloomberg EFF analyst Eric Balchunas shared some of the pieces. The submission At X, they commented that the filing contains “other elements” that make the Ethereum ETF application similar to the recently approved Bitcoin ETF futures position.

Here we go again: ARK/21Shares just filed an updated S-1 for their spot ether etf, which appears to be the only updated financial innovation and others they brought with their recently approved spot btc etf prospectus. pic.twitter.com/clN2oZmA6I

— Eric Balchunas (@EricBalchunas) February 7, 2024

Exchange-traded funds use a creation and redemption process between sponsors and authorized participants that helps align market prices with net asset values. Recently approved spot Bitcoin ETFs feature SEC-mandated investment return models. This requires authorized participants to switch to ETF shares instead of in-kind assets.

While cash redemptions can improve the ETF's traceability, it increases costs passed on to investors. On the other hand, the model provides more control over the assets, greatly simplifies the accounting and auditing procedures for the funds. Despite the potential downsides, the SEC appears to support the financial model of maintaining a tight correlation between ETF shares and bond holdings.

ARK 21Shares acknowledges that this model could affect arbitrage transactions intended to closely tie the ETF's share price to Ether. ARK 21Shares claims to keep Ether from the trust's cold storage balance, and the trust earns high rewards that count as income.

“The sponsor may, from time to time, acquire a portion of the assets of the trust in one or more trusts. [third-party] Providers who deliver,” the filing says.

Despite the promises of rewards, the organization acknowledges that Ether staking comes with associated risks, such as penalty cuts, which could result in the loss of Ether accumulated. In particular, the archive also highlights how Ether can be locked for long periods of time.

The SEC is scheduled to rule on ether ETF applications in several places in the coming months, including VanEck on May 23rd, ARK 21Shares on May 24th, Hashdex on May 30th, Grayscale on June 18th and Invesco on July 5th. Additional filings from Fidelity and BlackRock are scheduled for August and August 7, respectively.

Bloomberg ETF analyst James Seifert expects a general decision from the SEC covering all applications on May 23. But the analyst of Opportunities 70% to 60% year-over-year spot ether ETF approval.

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