90 FR 122 pgs. 27680-27683 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Rule Governing the Invesco Galaxy Ethereum ETF To Permit Staking
Type: NOTICEVolume: 90Number: 122Pages: 27680 - 27683
Pages: 27680, 27681, 27682, 27683Docket number: [Release No. 34-103307; File No. SR-CboeBZX-2025-077]
FR document: [FR Doc. 2025-11876 Filed 6-26-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103307; File No. SR-CboeBZX-2025-077]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Rule Governing the Invesco Galaxy Ethereum ETF To Permit Staking
June 24, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Act"), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on June 9, 2025, Cboe BZX Exchange, Inc. (the "Exchange" or "BZX") filed with the Securities and Exchange Commission (the "Commission") the proposed rule change to amend the Invesco Galaxy Ethereum ETF to permit staking. On June 23, 2025, the Exchange filed Amendment No. 1 to the proposed changes, which replaced and superseded the original filing in its entirety.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 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.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change, as Modified by Amendment No. 1
Cboe BZX Exchange, Inc. ("BZX" or the "Exchange") is filing with the Securities and Exchange Commission ("Commission" or "SEC") a proposed rule change to amend the rule governing the Invesco Galaxy Ethereum ETF (the "Trust"), shares (the "Shares") of which have been approved by the Commission to list and trade on the Exchange pursuant to BZX Rule 14.11(e)(4), to permit staking of ether held by the Trust.
[top] The text of the proposed rule change is also available on the Exchange's website ( http://markets.cboe.com/us/
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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 these 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 1 to SR-CboeBZX-2025-077 amends and replaces in its entirety the proposal as originally submitted on June 9, 2025. The Exchange submits this Amendment No. 1 in order to clarify certain points and add additional details to the proposal.
The Commission approved the Exchange's proposal to list and trade shares (the "Shares") of the Trust on the Exchange pursuant to Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on May 23, 2024. 3 Exchange Rule 14.11(e)(4) governs the listing and trading of Commodity-Based Trust Shares, which means a security (a) that is issued by a trust that holds (1) a specified commodity deposited with the trust, or (2) a specified commodity and, in addition to such specified commodity, cash; (b) that is issued by such trust in a specified aggregate minimum number in return for a deposit of a quantity of the underlying commodity and/or cash; and (c) that, when aggregated in the same specified minimum number, may be redeemed at a holder's request by such trust which will deliver to the redeeming holder the quantity of the underlying commodity and/or cash. The Shares are issued by the Trust, which was formed as a Delaware statutory trust on September 27, 2023.
Footnotes:
3 ? See Securities Exchange Act Release Nos. 100219 (May 22, 2024) 89 FR 46543 (May 29, 2024) (SR-CboeBZX-2023-087) (Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the Invesco Galaxy Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares) (the "Eth ETP Amendment No. 1); 100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (SR-CboeBZX-2023-087) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Shares of Ether-Based Exchange-Traded Products) (the "ETH ETP Approval Order").
Based on discussions with the Sponsor, the Exchange proposes to amend several portions of the Eth ETP Amendment No. 1, as amended, in order to allow the staking of ether held by the Trust. 4 First, the Exchange proposes to delete the following representation in the Eth ETP Amendment No. 1 that provides that the Fund will not engage in staking:? 5
Footnotes:
4 ?The Exchange has also filed a separate proposed rule change to amend portions of the Eth ETP Amendment No. 1 in order to allow for in-kind creation and redemptions. See Securities Exchange Act Release No. 102645 (March 10, 2025) 90 FR 12602 (March 18, 2025) (SR-CboeBZX-2025-035).
5 ? See Eth ETP Amendment No. 1 at 46550.
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 Exchange also proposes to revise the rules governing the listing and trading of shares by adding the following representations. In particular, the Exchange proposes to adopt the below "Staking" section following the "The ETH Custodian" section? 6 and before the "Creation and Redemption of Shares" section of the Eth ETP Amendment No. 1:
Footnotes:
6 ? See Eth ETP Amendment No. 1 at 46551.
Staking
The Sponsor may stake, or cause to be staked, all or a portion of the Trust's ether through one or more trusted staking providers ("Staking Providers"). In consideration for any staking activity in which the Trust may engage, the Trust would receive all or a portion of the staking rewards generated by the Staking Provider, which may be treated as income to the Trust.
The Staking Process
On September 15, 2022, the Ethereum network upgraded from proof-of-work to a proof-of-stake consensus mechanism in a transition commonly referred to as "the Merge". Proof-of-stake was intended to address the perceived shortcomings of the proof-of-work related to energy usage and duplicative computational effort expended by network contributors (known under proof-of-work as "miners" and under proof-of-stake as "validators"). In a proof-of-work mechanism, miners compete to be the first to solve the cryptographic puzzle. The winner then becomes the only miner permitted to process the block and, in turn, the one to receive the respective rewards. Miners who are not first in time (and thus are not permitted to process the next block) will have effectively expended significant labor and computing power for no gain. Under a proof-of-stake mechanism, several validators can be involved in the processing of a block. One validator may be selected to propose a block while other validators verify the content of that block. The corresponding rewards vary per role performed. Additionally, validators do not compete based on computational power like miners do. Instead, the amount of capital each validator has committed, in the form of the blockchain's native currency, is what contributes to the selection. This proof-of-stake system reduces the computational work performed-and energy expended-to validate each block compared to proof-of-work.
Under proof-of-stake, validators staking a minimum of 32 ether are randomly selected by an Ethereum Network algorithm to process transactions. Entities running multiple validator nodes will therefore experience an increased likelihood of any one of their validators being selected based on their share of validators compared to the total active validators on the network. Any malicious activity, such as double signing, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the forfeiture or "slashing" of a portion of the staked ether.
To operate a node on the Ethereum blockchain, a validator must acquire and lock at least 32 ether by sending a deposit 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 stake, or cause to be staked, all or a portion of the Trust's ether on behalf of the Trust through one or more Staking Providers. The Sponsor expects to maintain sufficient liquidity in the Trust to satisfy redemptions and current liabilities. Any 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 activities that the SEC has alleged to involve securities offerings in violation of Section 5 of the Securities Act of 1933 (the "Securities Act"). 7
Footnotes:
7 ? See SEC v. Payward Ventures, Inc. and Payward Trading, Ltd., (Complaint filed February 9, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-25.pdf . (In February 2023, the SEC charged and entered into a settlement order with Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, regarding Kraken's alleged failure to register the offer and sale of their crypto asset staking as a service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent. According to the SEC's complaint, since 2019, Kraken has offered and sold its crypto asset "staking services" to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors. According to the SEC, investors would lock up-or "stake"-their crypto tokens with Kraken with the goal of being rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain. The complaint alleged that Kraken touted that its staking investment program offered an easy-to-use platform and benefits that derived from Kraken's efforts on behalf of investors, including Kraken's strategies to obtain regular investment returns and payouts.) See also SEC v. Binance Holdings Limited, et al., (Complaint filed June 5, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf . (On June 5, 2023, the SEC filed a complaint charging Binance Holdings Ltd. and certain of its affiliates with a variety of securities law violations, including operating a "staking as a service" program. The SEC's complaint alleges, among other things, that BAM Trading violated Sections 5(a) and 5(c) of the Securities Act by offering and selling its staking program without a registration statement, and that BAM Trading's Staking Program was promoted "as a superior and much easier way to obtain staking rewards by, among other things, pooling the crypto assets of a large number of investors.") See also SEC v. Coinbase, Inc. and Coinbase Global (Complaint filed June 6, 2023) available at https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-102.pdf . (On June 6, 2023, the SEC filed a complaint against Coinbase, Inc. and Coinbase Global in federal district court in the Southern District of New York, alleging, inter alia that Coinbase Inc. violated the Securities Act by failing to register with the SEC the offer and sale of its staking program. The SEC's complaint alleges that through the Coinbase staking program, investors' crypto assets are transferred to and pooled by Coinbase (segregated by asset), and subsequently "staked" (or committed) by Coinbase in exchange for rewards, which Coinbase distributes pro rata to investors after paying itself a 25-35% commission. The SEC also alleges that investors understand that Coinbase will expend efforts and leverage its experience and expertise to generate returns. On February 27, 2025, the SEC filed to dismiss its lawsuit.)
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First, the Sponsor will only stake, or cause to be staked, ether held by the Trust. The Sponsor will not seek to pool ether held by the Trust with ether held by other entities in order to stake its assets in a node. Second, the Sponsor will not advertise itself as providing any staking services generally, or promise or promote any specific level of return from staking, or solicit delegated stakes from entities other than the Trust. Third, the Sponsor will stake, or cause to be staked, the Trust's ether solely in order to preserve the assets of the Trust by contributing to the security of the network and to generate returns for the Trust's shareholders.
Staking by the Sponsor will not result in ether held by the Trust moving out of the control of the Custodian. The staking contract can only release ether, either remaining principal or rewards, to the withdrawal address specified when the validator is created. The private keys associated with this withdrawal address are controlled by the Custodian. Additionally, the Sponsor will engage with Staking Provider(s) to execute software and hardware necessary for a live validator to perform its duties. Even if the validators are unable to perform these duties due to complete failure or disruption of the hardware, the Custodian is able to retrieve ether from the associated validators.
Except for the above changes, all other representations in the Eth ETP Amendment No. 1, as amended, remain unchanged and will continue to constitute continuing listing requirements. In addition, the Trust will continue to comply with the terms of the ETH ETP Amendment No. 1, as amended, and the requirements of Rule 14.11(e)(4).
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) of the Act. 8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)? 9 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.
Footnotes:
8 ?15 U.S.C. 78f(b).
9 ?15 U.S.C. 78f(b)(5).
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 its ether on behalf of its investors. The Ethereum network allows for staking of its native asset, ether, and permits validators who successfully stake ether to receive block rewards. 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 network security and functionality. Validators are compensated for fulfilling this important role through block rewards.
Allowing the Trust to stake its ether would benefit investors and help the Trust to better track the returns associated with holding ether. This 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.
Except for the addition of staking of the Trust's ether and the changes discussed herein, all other representations made in the Eth ETP Amendment No. 1, as amended, remain unchanged and will continue to constitute continuing listing requirements for the Trust.
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 purposes of the Act. As noted above, the proposed amendment is intended to benefit investors and allow the Trust to better track the returns associated with holding ether. The Exchange believes these changes will not impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change, as Modified by Amendment No. 1, 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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov . Please include file number SR-CboeBZX-2025-077 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
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Footnotes:
10 ?17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 10
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11876 Filed 6-26-25; 8:45 am]
BILLING CODE 8011-01-P