ARK Invest and 21Shares have removed staking plans from their updated spot Ether exchange-traded fund proposal.

In the updated filing submitted on Friday, May 10, the clause stating 21Shares would stake a portion of the fund’s assets through third-party providers was removed. It previously said, “Sponsor may, from time to time, stake a portion of the Trust’s assets through one or more trusted Staking Providers.”

In their Feb. 7 filing, the companies included a clause stating that 21Shares anticipated receiving ETH as a reward for staking and intended to classify the resulting earnings as income generated by the fund.

However, the latest filing removes the relevant section, but it maintains broader comments, including losses due to slashing penalties, temporarily inaccessible funds during bonding and unbonding, and potential impacts on the price of Ether
ETH

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According to Bloomberg ETF analyst Eric Balchunas, the update may be an effort to refine the application in response to potential feedback from the United States Securities and Exchange Commission (SEC) despite the absence of official comments.

Alternatively, Balchunas suggests that the change could be a last-ditch effort or a strategic move to limit the information available for the SEC to base a potential rejection on.

In September 2023, ARK Invest and 21Shares submitted an application for a spot Ether ETF. The fund aims to provide direct exposure to Ether and will trade on the Cboe BZX Exchange if approved. The exchange will utilize the CME CF Ether-Dollar Reference Rate – New York Variant.

The sponsor is 21Shares, Delaware Trust Company is the trustee, and Coinbase Custody Trust Company will hold the underlying Ether assets, while ARK Investment Management serves as a sub-adviser, marketing the shares.

The SEC has been delaying decisions on spo. The agency delayed making a decision on the Invesco Galaxy spot Ethereum ETF proposal and also pushed back deadlines for other proposals from Grayscale, Franklin Templeton, VanEck and BlackRock.

The regulator must decide on VanEck’s spot Ethereum application by May 23, followed by Ark and 21Shares’s application on May 24.

The SEC approved the listing and trading of spot Bitcoin ETFs on U.S. exchanges in January. However, optimism for the approvals of spot Ethereum ETFs has dwindled in recent months, with Bloomberg ETF analyst Eric Balchunas lowering his estimate of the chances of a spot Ethereum ETF approval by late May from about 70% to 25%.

SEC insists that Coinbase ‘just does not like the answer’

The U.S. SEC argues that “having made the weather, Coinbase cannot complain that it is now raining.”

The United States Securities and Exchange Commission (SEC) has opposed cryptocurrency exchange Coinbase’s request for an interlocutory appeal concerning a “controlling question” in the ongoing lawsuit, alleging that Coinbase is seeking to manipulate the interpretation of the question itself.

“Coinbase’s attempts to manipulate the question for appeal to shoehorn it into a certifiable question under 28 U.S.C. § 1292(b) are self-defeating,” the SEC declared in a May 10 filing with the U.S. District Court for the Southern District of New York.

The SEC further reiterated that Coinbase “does not like” the Howey test — the agency’s standard for determining what is a security — and the current framework for securities regulation while allegedly setting up its business in ways that might “make it costly” to follow existing laws.

“Coinbase just does not like the answer. Having made the weather, Coinbase cannot now complain that it is raining.”
It comes after Coinbase filed an interlocutory appeal on April 12, arguing that an investment contract cannot exist without a post-sale obligation.

As the SEC disagrees with this, Coinbase alleges that whether or not it does so is a controlling question — a key legal issue that can strongly influence the outcome of the case.

However, the SEC argued that Coinbase is only claiming this to be a controlling question as the exchange can’t provide a clear explanation of what constitutes a “contractual undertaking.”

“Coinbase remains unable to advance a single, coherent version of this theory, which it now claims presents a controlling question,” the SEC asserted.

Court filing in the U.S. District Court for the Southern District of New York. Source: CourtListener
However, the SEC argued that in 80 years, no court has ever demanded “contractual undertakings” after a sale.

“Interlocutory review is not warranted simply because Coinbase proposes a new legal test and disagrees with the Court’s rejection of that test,” the SEC noted.

“But Coinbase’s decision to do so, and its desire to rewrite settled, decades- old legal precedent to fit its own policy goals and business needs provides no compelling reason to prematurely certify an appeal in this case,” it added.

The SEC sued Coinbase in June 2023, saying the crypto exchange violated federal securities laws by listing 13 tokens it alleged were securities.

Coinbase argued that the transactions on its exchange shouldn’t be considered securities, claiming they fall outside of SEC regulations. However, the SEC holds the opposite opinion.

“At least some of the transactions on Coinbase’s platform and through related services constitute ‘investment contracts,’ which the federal securities laws have long recognized as securities,” the SEC stated in March 27 court documents.

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