Fidelity gives ETFs authority to stake 100% of crypto, outlines exit risks

Fidelity's FETH and FSOL prospectuses authorize each fund to stake up to 100% of its crypto under normal conditions. The Aug. 21 prospectuses state that neither fund has a minimum staking requirement. FD Funds Management can keep assets unstaked for foreseeable redemptions. The sponsor can also keep assets unstaked for expenses, asset protection and its liquidity program. The 100% figure is an authority ceiling, not evidence that either fund is fully staked. FSOL had 1,675,797 SOL staked out of 1,687,589 SOL held on June 30. The staked SOL had a fair value of $126.3 million. FSOL reported net assets of $127.079 million. Its trailing 30-day staked percentage was 99.64%. FETH reported 476,311 ether and $758.609 million in net assets on June 30. FETH did not report a staked-ether amount. Fidelity amended FETH's trust and custody arrangements in August. The new prospectus said staking was expected to begin as soon as practicable after Aug. 21. Reserves are the first redemption buffer. The sponsor may temporarily extend settlement if reserves are insufficient and unstaking cannot finish within the standard settlement window. The sponsor may deliver cash instead of some or all of the crypto owed in an in-kind redemption if an exit remains impracticable within a reasonable extended period. These options are discretionary. The filings do not describe them as automatic protections. The filings do not say that the funds have used them. FSOL expects to regain complete control of staked SOL within two days under normal conditions. FSOL does not guarantee that result. FETH provides no fixed duration for validator exits. Ethereum validators must leave the active set and pass a mandatory wait before a withdrawal sweep processes them. Heavy exit demand or network disruption can lengthen either timeline. Potential future backstops include a credit facility involving the sponsor or an affiliate. Other possible measures include borrowing digital assets directly, selling or transferring validator positions, and using liquid staking tokens or tradable rights to staked assets. Neither trust had a line of credit as of Aug. 21. Several mechanisms depend on legal, tax or exchange-rule changes. Each trust pays 15% of gross staking rewards in aggregate staking fees. Each trust retains the remaining 85%. The retained share can fund trust expenses. It can also fund quarterly cash distributions, redemptions and additional staking. The stated priority order is expenses, quarterly cash distributions, redemptions and additional staking. The sponsor can change that order. The trusts would make quarterly distributions in cash after selling rewards. The amount and timing of those distributions are not guaranteed.