Fidelity is preparing to add Ethereum staking to its nearly $900 million Fidelity Ethereum Fund, a move that could allow shareholders to benefit from staking rewards while continuing to hold exposure to ETH through the fund.
According to an amended registration statement filed with the U.S. Securities and Exchange Commission on Aug. 11, Fidelity plans to let the Fidelity Ethereum Fund, or FETH, stake as much as 100% of its ether under normal market and network conditions.
The proposal would also introduce quarterly cash distributions funded by staking rewards. Fidelity said the fund would keep 85% of the gross rewards generated through staking, while the remaining 15% would be shared among the sponsor, custodians and validator operators.
The filing marks a significant change for FETH, which currently holds Ethereum without earning staking income from those assets.
Fidelity could stake nearly all of FETH’s Ethereum
Fidelity said there would be no fixed minimum amount of ETH that must be staked. Depending on liquidity needs and market conditions, the fund could stake anywhere from a small portion to nearly all of its Ethereum holdings.
However, Fidelity would keep enough ETH outside validators to meet expected redemptions, operating expenses and shareholder distributions.
The company described “normal conditions” as periods when the Ethereum network is functioning without major disruptions, redemption activity remains within expected levels and no extraordinary circumstances require the fund to maintain additional liquid ETH.
Once Fidelity determines how much ether can be staked, its custodians would allocate the assets to selected Ethereum validators.
The filing names Blockdaemon, Figment and Galaxy Digital Trading Cayman as intended node operators. Fidelity said allocations between these providers could depend on their security standards, technology, operational experience and the amount of fund assets already assigned to each operator.
Importantly, the custodians would continue controlling the private keys while node operators would be responsible for running the validator infrastructure.
FETH would retain 85% of staking rewards
Under the proposed arrangement, 15% of gross staking rewards would go toward fees paid to Fidelity’s sponsor, custodians and node operators.
The remaining 85% would stay with the fund.
Those net rewards would first be available to cover fund expenses and liabilities. Afterward, Fidelity could use the remaining staking income for shareholder distributions, redemptions or additional staking.
The fee structure is notably higher than the staking arrangement proposed by Morgan Stanley for its Ethereum and Solana ETFs.
Morgan Stanley previously proposed keeping 95% of staking rewards inside its trusts, with the remaining 5% allocated to staking service providers and custodians.
Even so, the ability to earn staking income could give FETH an additional source of return beyond changes in Ethereum’s market price.
Fidelity plans quarterly cash distributions
Fidelity does not plan to distribute staking rewards directly in ETH.
Instead, rewards would accumulate as ether inside the fund until Fidelity declares a record date. A trading counterparty would then sell the ETH designated for distribution and convert the proceeds into U.S. dollars.
Under normal conditions, shareholders could receive these distributions every quarter.
However, Fidelity stressed that payments would not be guaranteed.
The amount available for distribution would depend on several factors, including Ethereum staking yields, validator performance, network conditions, operating expenses, fees and potential slashing penalties.
Fidelity could also choose not to make a distribution if the fund’s liabilities exceed the staking rewards available during a particular period.
In that situation, the fund could retain the rewards to meet its financial obligations.
Grayscale has already distributed Ethereum staking income
Fidelity would not be the first major crypto fund manager to use staking rewards for shareholder payouts.
Grayscale previously distributed Ethereum staking proceeds to investors through its Ethereum staking product.
In January 2026, the Grayscale Ethereum Staking ETF paid shareholders $0.083178 per share after generating rewards between Oct. 6 and Dec. 31, 2025.
The total payment was approximately $9.4 million.
Rather than distributing ETH directly, Grayscale sold its staking rewards and paid shareholders in cash, a structure similar to what Fidelity is now proposing.
Grayscale’s Ethereum products began staking in October 2025, while ETHE became the first U.S.-listed spot crypto exchange-traded product to distribute staking proceeds to shareholders.
BlackRock, meanwhile, took a different approach.
Rather than adding staking to its existing Ethereum product, the asset manager launched a separate iShares Staked Ethereum Trust ETF, known as ETHB.
The fund began trading in March and was designed to keep roughly 70% to 95% of its Ethereum staked through validators operated by companies including Figment, Galaxy and Attestant.
IRS guidance opened the door for ETF staking
Fidelity’s staking proposal also reflects regulatory progress made in the United States.
In November 2025, the U.S. Treasury Department and Internal Revenue Service introduced Revenue Procedure 2025-31.
The guidance established a safe harbor for qualifying investment trusts that hold digital assets and participate in staking.
Before the guidance, tax uncertainty had been one of the main obstacles preventing U.S. crypto ETFs from staking assets such as ETH and SOL.
Under the new framework, qualifying trusts can earn staking rewards while maintaining their treatment as investment trusts and grantor trusts for federal tax purposes, provided they meet specific requirements.
Fidelity said it intends to operate FETH’s staking and liquidity activities in accordance with the IRS safe harbor.
The fund’s investment objective would also be updated so its performance reflects Ethereum’s price through the Fidelity Ethereum Reference Rate, adjusted for expenses and liabilities, along with an amount linked to staking rewards.
Staking creates new liquidity and redemption risks
Although staking could generate additional income, it would also introduce new risks for FETH shareholders.
Ethereum that is actively staked cannot always be withdrawn immediately.
Fidelity said exiting Ethereum validators and completing withdrawals could take around one day under favorable circumstances. During periods of heavy validator activity, however, the process could take weeks or even months.
That delay could become important if the fund experiences unusually high redemption demand.
To manage the risk, Fidelity plans to maintain enough liquid assets to meet expected redemptions, expenses and shareholder distributions.
The fund has also established a liquidity risk management program that includes daily monitoring and annual reviews by Fidelity’s Fair Value and Liquidity Risk Management Committee.
Possible liquidity tools identified in the filing include credit facilities, transfers of validator positions to third parties, delayed settlement arrangements and potentially liquid staking tokens or other smart contract-based liquidity mechanisms where regulations permit them.
Fidelity noted that FETH had not entered into a credit line as of the prospectus date.
If the fund does not have enough unstaked ETH to complete a redemption, Fidelity may extend the settlement period while it waits for ETH to exit validators.
In some cases, the sponsor could also complete part or all of a redemption in cash using the fund’s applicable Ethereum index price.
Slashing remains another important risk
Staking also exposes FETH to the possibility of slashing.
Ethereum validators can lose part of their staked ETH if they fail to follow network rules or experience certain operational problems.
Fidelity warned that validator failures, protocol issues, cybersecurity incidents involving custodians or node operators, and errors during reward transfers could reduce the amount of ETH held by the fund.
The risks mean Fidelity will need to balance staking income with the liquidity required to operate the ETF smoothly.
Still, the proposal highlights how staking is increasingly becoming part of the U.S. institutional Ethereum market.
If approved and implemented, Fidelity’s move could transform FETH from a product that simply tracks the value of Ethereum into one that also generates yield from the network’s proof-of-stake system.
