Amid growing anticipation of spot Ethereum ETH +2.33% exchange-traded fund approvals in the United States, removing staking rewards from the proposals seems crucial in the Security and Exchange Commission’s decision-making process.

Unlike Bitcoin, Ethereum’s proof-of-stake consensus protocol allows users to stake their assets on the network, contributing to its security in return for a yield — currently around 3%.

Even before Bloomberg ETF analysts Eric Balchunas and James Seyffart dramatically raised their odds of spot Ethereum ETF approvals in the U.S. from 25% to 75% on Monday amid signs of a “180” from the SEC, Ark Invest cut the staking component of its spot Ethereum ETF application last week. Fidelity followed suit in an amended S-1 registration statement on Tuesday, as did Grayscale in an amended preliminary proxy statement — removing all language related to staking or staking rewards. In previous filings, the asset manager had proposed to investors the ability to stake a portion of ether with staking providers via the funds.

The updated language may be due to the SEC's concerns about staking cryptocurrencies. For example, the SEC sued Coinbase in June 2023 for providing access to staking through its platform, claiming it was violating securities laws.

No entity connected to the potential spot Ethereum ETFs can stake ether

Last week, Coinbase analyst David Han took the then-contrarian viewpoint that the market may be “underestimating” the timing and odds of a potential spot Ethereum ETF approval, citing the correlation between CME futures and spot exchange rates — a rationale used to approve the spot Bitcoin ETFs — but warned that spot Ethereum ETFs that included staking elements were unlikely to be approved.

However, while staking rewards for investors in the potential ETFs have clearly been removed, some uncertainty remained on social media over whether or not the asset managers would be allowed to stake the ether for themselves. “Question remains whether the asset managers are allowed to stake the ETH for themselves?,” Global Macro Investor CEO Raoul Pal posted on X yesterday. “If they are able to, then this is the most profitable ETF in the world to run and they will be motivated to get as many assets as possible.”

Following the amended statements, Cboe BZX later filed updated 19b-4 forms on Tuesday for the Franklin Ethereum Trust, Fidelity Ethereum Fund, VanEck Ethereum Trust, Invesco Galaxy Ethereum ETF and the ARK 21Shares Ethereum ETF.

Clearing up the uncertainty, Seyffart pointed to a section of the Fidelity filing, which, like its competitors, added very clear language that the fund's ether cannot be staked by anyone, at least if they want a better chance at SEC approval.

“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 filing states. “The Trust will not acquire and will disclaim any incidental right (‘IR’) or IR asset received, for example as a result of forks or airdrops, and such assets will not be taken into account for purposes of determining NAV,” it adds.

The SEC has key deadlines on Thursday and Friday to decide whether to approve the applications for spot Ethereum ETFs submitted by VanEck and Ark Invest, respectively.