With Coinbase as a strategic collaborator, these measures by 3iQ represent another digital asset investment “first” in North America and a significant development for the broader exchange-traded product ecosystem
TORONTO, June 28, 2023 3iQ Digital Asset Management (3iQ), a global pioneer in digital asset investment solutions and one of the largest investment fund managers dedicated only to digital assets in Canada, is pleased to announce that, effective on or about August 28, 2023, The Ether Fund (TSX: QETH.UN, QETH.U) and the 3iQ Ether ETF (TSX: ETHQ, ETHQ.U) (the Funds) will commence staking ether (ETH) held in their portfolios. The implementation of these enhancements will mark the launch of the first exchange-traded products (ETPs) in North America and the first ETF globally to implement staking as part of its investment strategy.
3iQ believes that the realization of staking activities will provide the Funds and their unitholders with an opportunity for yield enhancement. Through staking, the Funds will earn rewards in the form of ETH, which will be reflected in the net asset value (NAV) of the Funds through accretive yield while augmenting the Funds exposure to ETH.
“While staying true to the investment objectives of the Funds, we believe that commencing ETH staking offers the best of both worlds to our investors – providing additional yield while eliminating the complexities of directly handling digital assets,” said Fred Pye, Chairman and CEO of 3iQ. “3iQ has an established history of delivering digital asset investing firsts in North America, Canada and across the globe, and we remain committed to staying at the forefront of innovation and providing compelling digital asset investment solutions for our clients.”
With Coinbase Custody Trust Company, LLC serving as a custodian to the Funds, 3iQ will also exclusively use Coinbase Custody’s institutional staking infrastructure to support ETH staking in these products.
Brett Tejpaul, Head of Coinbase Institutional, added, "We are proud to strengthen our strategic relationship with 3iQ and continue to demonstrate that Coinbase is consistently chosen by reputable players for our unwavering commitment to safety, trust, and security in the digital asset ecosystem".
In 2020, 3iQ launched The Ether Fund as well as The Bitcoin Fund (TSX: QBTC, QBTC.U) which became North America’s first major exchange-listed bitcoin and ether funds. With its plan to commence ETH staking, 3iQ continues to advance the ETP ecosystem for digital assets in Canada, while simultaneously seeking to broadly maintain the security and integrity of the Ethereum network.
Staking Activities
3iQ has partnered with its custodian, Coinbase Custody, to provide secure staking activities to the Funds. 3iQ will be responsible for directing Coinbase Custody to delegate ETH that is held via Coinbase Custody in a cold wallet to a validator. Rewards earned on the delegated ETH will be paid in ETH, subject to any bonding or lock-up period. Coinbase Custody will be entitled to a fee in respect of the rewards and may pay a portion of that fee to any third-party service provider acting as a validator. Subject to any required approvals, 3iQ will enter into a revenue sharing arrangement pursuant to which it would be entitled to a specified share of the earned rewards. 3iQ will provide notice of the revenue sharing arrangement prior to the implementation of the staking activities of the Funds. A Fund’s portion of the rewards will be delivered to a custodial wallet of the Fund held with Coinbase Custody. Such portion of the ETH rewards will be reinvested in the Fund and staked in accordance with the staking activities. Although there is currently no minimum or maximum amount of the portfolio assets of a Fund that may be staked, 3iQ intends to adopt a measured approach to the staking activities, taking into account the liquidity needs of the Funds, the novelty of the investment strategy as well as any applicable regulatory requirements and approvals.
For more information on staking, the Ethereum network and the staking activities of the Funds, including the risks associated therewith, please visit https://3iq.io/staking (the“FAQ”). A summary of these items, which is qualified by the more detailed disclosure in the FAQ, is also provided below.
Recent Changes to the Ethereum Network
The ability of the Ether Fund to stake ETH arises in part as a result of recent updates to the Ethereum network, referred to as the Shanghai/Capella upgrade (the “Upgrade”), which was completed on April 12, 2023. The upgrade completes the transition of the Ethereum network, commenced on September 15, 2022, from a proof-of-work protocol to a proof-of-stake protocol via the merger of the original execution layer of the Ethereum Mainnet with Ethereum’s new proof-of-stake consensus layer, the Beacon Chain (an event referred to as the “Merge”). Since the Merge, the Ethereum Network now uses a consensus mechanism to achieve distributed consensus in a delegated proof-of-stake protocol. The delegated proof-of-stake mechanism relies on third-party validator nodes to verify transactions included in each new block. Validators are incentivized with ETH rewards in exchange for verifying transactions.
Risks Associated with Staking
There are risks associated with the staking activities, including third-party risk, illiquidity risk, risks from slashing and missed rewards, due diligence risk related to validators and the Ethereum network, short history risk, regulatory risk and risks related to uncertain tax consequences.For further discussion relating to the risks associated with staking activities, please refer to the FAQs.
Approval of Staking Activities
3iQ shall ensure that all staking activity complies with applicable laws and continues to work with regulators in Canada and abroad in the design and implementation of innovative investment strategies, including the staking activities.
About 3iQ Digital Asset Management
Founded in 2012, 3iQ is one of the world’s leading digital asset investment fund managers. 3iQ was the first Canadian investment fund manager to offer a public bitcoin investment fund: The Bitcoin Fund (TSX: QBTC) (TSX: QBTC.U), and a public ether investment fund: The Ether Fund (TSX: QETH.UN) (TSX: QETH.U). More recently, 3iQ launched the 3iQ Bitcoin ETF (TSX: BTCQ) (TSX: BTCQ.U) and the 3iQ Ether ETF (TSX: ETHQ) (TSX: ETHQ.U). 3iQ offers investors convenient and familiar investment products to gain exposure to digital assets. To learn more about 3iQ, visit 3iq.io.
About Coinbase
Coinbase is building the cryptoeconomy – a more fair, accessible, efficient, and transparent financial system enabled by crypto. The company started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin. Today, Coinbase offers a trusted and easy-to-use platform for accessing the broader cryptoeconomy. Built for institutions, Coinbase Prime integrates advanced agency trading, custody, prime financing, staking, staking infrastructure, market data, and reporting that supports the entire transaction lifecycle. We combine these capabilities with leading security, insurance, and compliance practices to provide institutional clients of Coinbase with a full-service platform to access crypto markets at scale.
Media Contact:
3iQ:
Ryan Graham, JConnelly
862-777-4274
rgraham@jconnelly.com
Julie Mercuro, JConnelly
973-349-6471
jmercuro@jconnelly.com