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Grayscale Seeks to Convert Ethereum Trust into Spot ETF

Grayscale, a prominent provider of cryptocurrency investment products, has filed with the U.S. SEC to explore the transformation of its Grayscale Ethereum Trust (ETHE) into an Ethereum (ETH) spot ETF, mirroring its successful conversion of the Grayscale Bitcoin Trust in January.

The move, outlined in a preliminary proxy statement, aims to introduce several significant changes to the ETHE structure. These changes include allowing ETH backing shares to participate in staking through a Proof-of-Stake protocol, authorizing the creation and redemption of shares by authorized participants, transitioning from a monthly to a daily fee assessment model, and implementing a third-party custodian capable of managing shares through an omnibus account.

Omnibus accounts, which aggregate funds for trading on behalf of multiple clients, serve to anonymize the identities of individual investors.

Grayscale CEO Michael Sonnenshein expressed optimism about the proposed amendments, highlighting their potential to streamline and enhance the experience for ETHE shareholders. The initiative aligns with a broader industry trend, evidenced by similar filings from Fidelity Investments, indicating growing interest in Ethereum ETFs with staking functionalities.

Fidelity’s filing emphasized that, in exchange for staking activities, the fund would receive network rewards in the form of ether tokens, potentially treated as income for services rendered.

However, the approval of spot Ether ETFs remains uncertain amid regulatory challenges. Bloomberg analysts have expressed skepticism, suggesting that the SEC may reject all pending applications due to Ethereum’s ambiguous regulatory status compared to Bitcoin’s clear classification as a commodity.

Nonetheless, the cryptocurrency community remains hopeful that the approval of Ethereum ETFs could mirror the positive market dynamics seen with Bitcoin ETFs, despite regulatory hurdles.

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