[Federal Register Volume 90, Number 122 (Friday, June 27, 2025)]
[Notices]
[Pages 27680-27683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-11876]
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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Amendment No. 1 to the proposed changes, which replaced and superseded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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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
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.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/
[[Page 27681]]
equities/regulation/rule_filings/bzx/), at the Exchange's Office of the
Secretary, 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
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.
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\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'').
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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\
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\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
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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:
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\6\ See Eth ETP Amendment No. 1 at 46551.
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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\
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\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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[[Page 27682]]
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.
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\8\ 15 U.S.C. 78f(b).
\9\ 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 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 [email protected]. 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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All submissions should refer to file number SR-CboeBZX-2025-077. 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 (https://www.sec.gov/rules/sro.shtml). 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-CboeBZX-2025-077 and should
be submitted on or before July 18, 2025.
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\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