ARK 21Shares is updating its exchange-traded fund (ETF) application, taking inspiration from the recently approved Bitcoin ETF. The move involves adopting a cash-settled model and some additional bets.

In December 2023, ARK 21Shares and BlackRock were among the first issuers to turn their spot Bitcoin ETFs into a cash-settled creation and redemption model after cozying up to the US Securities and Exchange Commission. Now, they’re bringing that same flair to their Ether ETF, with plans to throw some of it out there to rake in some extra cash.

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ARK 21Shares Initially Proposed an In-kind Redemption Model

ARK 21Shares initially served up an in-kind redemption model for its spot Ether ETF, complete with non-cash payments like BTC. Following the cash-settled creation model, ARK 21Shares will be rounding up some Ether equivalent to the order size and depositing it into the trust’s account at the custodian’s place. Spot Ether ETF shares are conjured into existence.

Bloomberg ETF analyst Eric Balchunas remarked that the changes outlined in the latest S-1 amendment filed on February 7th now “bring them in line” with the approved spot Bitcoin ETFs. 

Katie Wood’s firm has come clean, admitting that the cash-settled creation model could negatively impact arbitrage in the works for authorized participants seeking to keep share prices with Ether. 

Ethereum Bets

In the latest S-1 filing, the ETF issuer is spicing things up by tossing in a betting component to its spot Ether ETF:

The sponsor may, from time to time, place a portion of the Trust’s assets with one or more third-party betting providers.

ARK 21Shares announced they’ll be counting on dishing out some of the Trust’s Ether stash from the cold storage vault, with the Trust pocketing rewards from the bets as extra income. 

ARK 21Shares has acknowledged the risks involved in the staking, warning of potential ETH losses due to slashing and the possibility of ETH being locked up for long periods.

Financial lawyer Scott Johnson pointed out that the paragraphs about betting were in brackets, suggesting that the issuer might be cautiously tiptoeing around the idea, perhaps hoping to slip them in later and discuss this with regulators. 

Bloomberg ETF analyst James Seyffart shared his “best-case scenario,” suggesting that the SEC might not be too keen on allowing betting within spot ETH-ETFs. “But only time will tell,” he added.

Meanwhile, Seyffart’s colleague, Eric Balchunas, dialed down the approval odds for a spot Ether ETF in 2024 from 70% to 60% just the other day on January 30th. 

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The US Securities and Exchange Commission is expected to make decisions on VanEck’s application by May 23rd, ARK 21Shares by May 24th, Hashdex by May 30th, Grayscale by June 18th, and Invesco by July 5th. Fidelity and BlackRock must be accepted by August 3rd and 7th, respectively.

Still, Seyffart anticipates a unified decision on all applicants by May 23rd – much like the SEC’s swift resolution on all spot Bitcoin ETFs back on January 10th. 

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