Notice2025-05894
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Bitwise Ethereum ETF To Permit Staking of the Ether Held by the Trust
Primary source
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Published
April 7, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 65 (Monday, April 7, 2025)</title>
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[Federal Register Volume 90, Number 65 (Monday, April 7, 2025)]
[Notices]
[Pages 15023-15026]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-05894]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102754; File No. SR-NYSEARCA-2025-25]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To Amend the
Bitwise Ethereum ETF To Permit Staking of the Ether Held by the Trust
April 1, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on March 20, 2025, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend the Bitwise Ethereum
ETF. On March 24, 2025, the Exchange filed Amendment No. 1 to the
proposed rule change, which replaced and superseded the original filing
in its entirety. The proposed rule change, as modified by Amendment No.
1, is described in Items I, II, and III below, which Items have
[[Page 15024]]
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change, as Modified by Amendment No. 1
The Exchange proposes to amend the Bitwise Ethereum ETF (the
``Trust''), shares of which have been approved by the Commission to
list and trade on the Exchange pursuant to Rule 8.201-E (Commodity-
Based Trust Shares), to permit staking of the ether held by the Trust.
This Amendment No. 1 to SR-NYSEARCA-2025-25 replaces SR-NYSEARCA-2025-
25 as originally filed and supersedes such filing in its entirety. The
proposed rule change is available on the Exchange's website at
<a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment
No. 1
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Trust, shares of which have been
approved by the Commission to list and trade on the Exchange pursuant
to Rule 8.201-E (Commodity-Based Trust Shares), to permit staking of
the ether held by each of the Trust.
Background
The Commission approved the listing and trading of shares of the
Trust (the ``Trust Shares'') on the Exchange under Rule 8.201-E on May
23, 2024.\4\
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\4\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (SR-NYSEARCA-2023-70; SR-NYSEARCA-
2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-
070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; SR-CboeBZX-2024-018)
(Order Granting Accelerated Approval of Proposed Rule Changes, as
Modified by Amendments Thereto, to List and Trade Shares of Ether-
Based Exchange-Traded Products).
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Rule 8.201-E governs the listing and trading of Commodity-Based
Trust Shares. Commodity-Based Trust Shares are securities issued by a
trust that represents investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust. The Trust Shares are issued by the Trust, which is a Delaware
statutory trust.
Proposed Rule Change
The Exchange proposes to amend Amendment No. 1 to the Trust Shares
filing \5\ (the ``Trust Shares Filing'') as described below to allow
the staking of the ether held by the Trust. First, the Exchange
proposes to delete the last sentence of footnote 12 in the Trust Shares
Filing, which represented that neither the Trust, nor the Sponsor, nor
the Ether Custodian, nor any other person associated with the Trust
will, directly or indirectly, engage in action where any portion of the
Trust's ether becomes subject to the Ethereum proof-of-stake validation
or is used to earn additional ether or generate income or other
earnings.
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\5\ See Securities Exchange Act Release No. 100213 (May 22,
2024), 89 FR 46533 (May 29, 2024) (SR-NYSEARCA-2024-31) (Notice of
Filing of Amendment No. 1 to a Proposed Rule Change To List and
Trade Shares of the Bitwise Ethereum ETF).
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Next, the Exchange proposes to add the following ``Staking''
section following the ``Custody of the Trust's Ether'' section in the
Trust Shares Filing:
Staking
The Sponsor may, from time to time, stake a portion of the Trust's
ether on behalf of the Trust through one or more trusted staking
providers, which may include the Custodian or an affiliate of the
Custodian (``Staking Providers''). However, the Sponsor will not
utilize any Staking Providers that are affiliates of the Sponsor. In
consideration for any staking activity in which the Trust may engage,
the Trust would receive certain staking rewards of ether tokens, which
may be treated as income to the Trust.
The Staking Process
In the second half of 2020, the Ethereum network began the first of
several stages of an upgrade culminating in a transition referred to as
the ``Merge.'' The Merge amended the Ethereum network's consensus
mechanism to a process known as proof-of-stake. Proof-of-stake was
intended to address the perceived shortcomings of the proof-of-work
consensus mechanism in terms of labor intensity and duplicative
computational effort expended by validators (known under proof-of-work
as ``miners''). In a proof-of-work consensus mechanism, miners
effectively compete to be the first in time to solve the cryptographic
puzzle that would allow them to be the only validator permitted to
validate the block and thus be the only ones to receive the resulting
block reward. Miners who are not first in time (and thus are not
permitted to be validators) will have effectively expended significant
labor and computing power for no gain. In a proof-of-stake mechanism,
by contrast, a single validator is randomly selected to solve the
cryptographic puzzle needed to validate a block, which it proposes to a
committee of other validators, who vote for whether to include the
block (or not). This proof-of-stake system reduces the computational
work performed--and energy expended--to validate each block compared to
proof-of-work.
Unlike proof-of-work, in which miners expend computational
resources to compete to validate transactions and are rewarded coins in
proportion to the amount of computational resources expended, in proof-
of-stake, validators risk or ``stake'' coins to compete to be randomly
selected to validate transactions and are rewarded coins in proportion
to the amount of coins staked. Any malicious activity, such as mining
multiple blocks, disagreeing with the eventual consensus or otherwise
violating protocol rules, results in the forfeiture or ``slashing'' of
a portion of the staked coins. Proof-of-stake is viewed as more energy
efficient and scalable than proof-of-work.
New ether is created as a result of the staking of ether by
validators. Validators are required to stake ether in order to be
selected to perform validation activities and then once selected, as a
reward, they earn newly created ether. Validation activities include
verifying transactions, storing data, and adding to the Ethereum
blockchain. To operate a node on the Ethereum blockchain, a validator
must acquire and lock 32 ether by sending a special transaction to the
staking contract. This transaction associates the staked ether with a
withdrawal address (to unlock the ether and receive any staking
rewards) and a validator address (to designate the validator node
performing transaction verification).
Staking by the Sponsor on Behalf of the Trust
The Sponsor may, from time to time, stake a portion of the Trust's
ether on
[[Page 15025]]
behalf of the Trust through one or more Staking Providers. The Sponsor
expects to maintain sufficient liquidity in the Trust to satisfy
redemptions. The ether staked by the Sponsor on behalf of the Trust
will consist exclusively of ether owned by the Trust. The Sponsor's
staking activities on behalf of the Trust will not constitute
``delegated staking'' and will not form part of a ``staking as a
service'' offering.
As further discussed below, the Sponsor believes its activities in
relation to staking the ether held by the Trust on behalf of the Trust
are materially different from the delegated staking and ``staking as a
service'' activities that the SEC has alleged to involve securities
offerings in violation of Section 5 of the Securities Act of 1933.\6\
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\6\ See, e.g., SEC v. Payward Ventures, Inc. and Payward
Trading, Ltd. (filed February 9, 2023), available at <a href="https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-25.pdf">https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-25.pdf</a>; SEC
v. Binance Holdings Limited, et al. (filed June 5, 2023), available
at <a href="https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf">https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf</a>; SEC v. Coinbase, Inc. and Coinbase Global (filed June 6,
2023), available at <a href="https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-102.pdf">https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-102.pdf</a>.
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First, the Sponsor will only stake the ether held by the Trust. The
Sponsor will not seek to pool the ether held by the Trust with ether
held by other entities (although such pooling may occur at the level of
a Staking Provider). Second, the Sponsor will not advertise itself as
providing any staking services generally, or promise any specific level
of return from staking, or solicit delegated stakes from entities other
than the Trust. Third, the Sponsor has stated that it claims no
particular expertise, experience, or technical know-how in relation to
staking, and is staking the Trust's ether solely in order to maximize
the Trust's revenue generation opportunities, and to generate returns
for the Trust's shareholders. Fourth, the Sponsor will not bear or
subsidize the risk of slashing on behalf of the Trust.
Staking by the Sponsor will not result in the ether held by the
Trust moving out of the custody of the Custodian. In order to stake the
Trust's ether, Sponsor will engage in what is known as ``point-and-
click staking.'' Point-and-click staking involves an interface through
which an entity can simply initiate staking by pointing and clicking on
the ether assets to be staked. This process does not involve the staked
ether leaving the wallet at which it is held, and accordingly reduces
the risk of loss of ether through theft at the node while the asset is
staked (although this process will not reduce the risk of loss of the
ether through slashing).
Except for the changes described above, all other representations
in the Trust Shares Filing remain unchanged and will continue to
constitute continued listing requirements. In addition, the Trust will
continue to comply with the terms of the Trust Shares Filing and the
requirements in Rule 8.201-E.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) \7\ of
the Act. Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \8\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b)(5).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed rule change is designed to
remove impediments to and perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest
because it would allow the Trust to stake ether on behalf of its
investors. The Ethereum network allows for staking of its native asset,
ether tokens, and permits validators who successfully stake ether to
receive rewards in the form of more ether tokens. The net beneficiaries
are not only validators, or those on behalf of whom they stake ether,
but also the Ethereum blockchain itself, which grows and is
progressively made more secure through the validation of transactions.
Staking permits validators to contribute to the Ethereum network by
staking their tokens to secure the Ethereum blockchain, facilitating
the creation of blocks, and helping process transactions. Validators
are compensated for fulfilling this important role through transaction
fees and consensus rewards paid by the blockchain itself.
Staking through mechanisms such as ``point-and-click'' staking
would also permit the earning of rewards without certain additional
risks to the tokens held by the Trust's Ether Custodian on behalf of
the Trust. Allowing the Trust to stake its ether would benefit
investors by permitting the Trust to exercise its rights to free
additional ether and help the Trust better track the returns associated
with holding ether. Permitting the Trust to engage in staking would
improve the creation and redemption process for both Authorized
Participants and the Trust, increase efficiency, and ultimately benefit
the end investors in the Trust.
As noted above, except for the proposed change to allow the Trust
to engage in staking of ether, all other representations in the Trust
Shares Filing remain unchanged and will continue to constitute
continued listing requirements. In addition, the Trust will continue to
comply with the terms of the Trust Shares Filing and the requirements
in Rule 8.201-E.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. As discussed above, the
proposed change is intended to benefit investors and allow the Trust to
better track the returns associated with holding ether.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
[[Page 15026]]
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6113140d044c020e0c0c040f1512211204024f060e17"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2025-25 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-25. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-25 and should
be submitted on or before April 28, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05894 Filed 4-4-25; 8:45 am]
BILLING CODE 8011-01-P
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