Fidelity Ethereum Fund (FETH): The Complete Investor’s Guide

Greg Ostrot
6 days ago
9 min read

Updated: 2 days ago

This explainer distills the Fidelity® Ethereum Fund prospectus dated July 31, 2025. It covers how FETH works, what it holds, how the index is built, fees, creation and redemption mechanics, custody, tax treatment, forks and airdrops, risks, and key disclosures—all directly sourced from the document.

What FETH Is

FETH is an exchange-traded product that issues shares which trade on Cboe BZX under the ticker “FETH.” Its objective is to track the performance of ether (ETH) as measured by the Fidelity Ethereum Reference Rate, net of expenses and liabilities. The fund holds ether to meet this objective and values its shares using the same methodology that underpins the index. Sponsor: FD Funds Management LLC. Custodian: Fidelity Digital Asset Services, LLC. Transfer Agent and Cash Custodian: State Street Bank and Trust Company. Trustee: CSC Delaware Trust Company.

FETH is not a 1940 Act fund and is not a commodity pool. The Sponsor is not an investment adviser under the Advisers Act. You do not receive the regulatory protections applicable to registered investment companies or commodity pools.

The Trust is organized as a Delaware statutory trust. It is passively managed and does not invest in derivatives.

How the Index Works

The Fidelity Ethereum Reference Rate is constructed from eligible spot markets using a volume-weighted median price (VWMP) methodology. It is calculated every 15 seconds using rolling 60-minute VWMP spot market data to reflect the U.S. dollar price of one ether.

Oversight of the index is by Fidelity Product Services LLC, with Coin Metrics, Inc. acting as independent calculation agent.

The Trust’s website publishes prior day NAV, official closing price, premium/discount data and distributions of discounts/premiums by quarter, plus daily holdings.

The exchange disseminates the intra-day indicative value (IIV) once every 15 seconds during trading. Any material index methodology changes are posted by the index provider, and the Trust will notify shareholders of material changes via supplement or report.

Important limitation: the index is a price-return series and does not track forks or airdrops.

What the Fund Holds and How Shares Trade

The Trust holds ether. Shares trade intraday on Cboe BZX, where investors buy and sell through brokers and pay standard brokerage commissions. Public trading can occur at a premium or discount to NAV.

NAV is calculated once daily by the Administrator after 4:00 p.m. Eastern Time. Quotation and last-sale information for the shares and IIV updates are available through the consolidated tape.

Creation and Redemption Mechanics

Shares are created and redeemed only in “Baskets” of 25,000 shares. An Authorized Participant (AP) can create or redeem in ether (“in kind”) or in cash, as specified by the AP Agreement. The Basket Deposit adjusts daily to reflect ether or cash per share net of accrued fees and expenses.

As of the prospectus date, the Trust only creates and redeems for cash. Any shift to in-kind creations/redemptions would require regulatory approvals and shareholder notification via prospectus supplement and/or report.

For cash creations, the AP deposits cash with the Cash Custodian. The Sponsor then instructs an ether trading counterparty to purchase ether for the Trust, seeking execution aligned with the Index price used for that day’s NAV, subject to spreads and trading costs. Any execution shortfall versus the Index price is the AP’s responsibility.

The resulting ether is deposited into the Trust’s Custodian account, and DTC credits the created shares to the AP’s account.

Creation and redemption orders incur a Transaction Fee that covers operational processing, brokerage, transfer fees, network fees, and stamp taxes. The Sponsor can change this fee.

Authorized Participants and Trading Counterparties

As of July 1, 2025, the Trust lists multiple APs and ether trading counterparties. APs include firms such as ABN AMRO Clearing USA LLC, BMO Capital Markets, Citadel Securities, Goldman Sachs, Jane Street Capital, Jefferies, J.P. Morgan Securities, Macquarie Capital (USA), and Virtu Americas.

Ether trading counterparties include A1, Ltd., Cumberland DRW, Flow Traders B.V., Galaxy Digital Trading Cayman LLC, JSCT, LLC (an affiliate of Jane Street), Virtu Financial Singapore Pte. Ltd. (an affiliate of Virtu Americas), and Wintermute Trading Ltd. These counterparties are expected to maintain AML/KYC practices and required licensing. Once selected for a trade, a counterparty is contractually obligated to settle.

Fees and Expenses

The Trust pays a unified Sponsor Fee of 0.25% per year on Ether Holdings. “Ether Holdings” equals the Trust’s ether plus any cash and other assets represented in ether at the Index price, minus liabilities (also represented in ether using the Index price).

The fee accrues daily and is payable monthly in ether or cash. The Sponsor bears any on-chain transaction fees incurred for paying the Sponsor Fee. The Sponsor can waive fees at its discretion.

The Sponsor pays “Sponsor-paid Expenses,” which include service providers (Distributor, Administrator, Custodian, Cash Custodian, Transfer Agent, Index Provider, Trustee), listing and trading-related expenses, ordinary legal and audit fees, regulatory fees, printing and mailing, website maintenance, and applicable license fees.

There is no cap on Sponsor-paid Expenses. The Trust bears “Extraordinary Expenses” such as litigation, regulatory enforcement, taxes, and certain brokerage and transaction costs when selling or transferring ether to cover such items.

When ether must be sold to cover expenses not assumed by the Sponsor, the Sponsor seeks quotes from trading counterparties and typically executes OTC. The Sponsor selects brokers/dealers with appropriate AML/KYC compliance.

Custody and Safekeeping

Fidelity Digital Asset Services, LLC (FDAS), a New York limited purpose trust company affiliated with the Sponsor, safeguards all ether owned by the Trust. State Street serves as cash custodian. State Street also serves as Transfer Agent and handles issuance and redemption settlement for APs.

Insurance on digital assets is not provided by FDIC or SIPC. Any insurance maintained by or for the Custodian is for the Custodian’s benefit, not the Trust’s. The Trust does not maintain third-party insurance on the Ether Accounts. The Trust relies on the Custodian’s SOC 1 Type II and SOC 2 Type II reports for controls assurance, including private-key management.

What You Do Not Get

Shareholders should not expect economic benefits from forks or airdrops. The Sponsor will cause the Trust to irrevocably abandon any asset from forks or airdrops that is not determined by the Sponsor to be “ether.” A change to this policy would require regulatory approvals and a listing rule amendment.

Because the index is price-only and excludes forked or airdropped assets, NAV calculation does not capture those events.

The Trust is different from owning ether directly. Performance can differ due to fees, transaction costs, and index tracking risk. Investors also forgo rights that may accrue to direct holders, such as claims on airdrops.

The Trust does not anticipate making distributions to shareholders.

Ethereum Protocol Background (Prospectus Summary)

Ethereum operates via proof-of-stake. Validators propose and attest to blocks. Misbehavior or protocol violations can be penalized. Extreme misconduct can lead to “slashing,” which forcibly ejects a validator and can result in loss of staked ether.

Spot markets and OTC channels are both used for ether trading. Centralized venues manage order books and typically reflect ownership in internal records, not necessarily on-chain. OTC markets are primarily institutional, negotiated bilaterally, often in large sizes, and sometimes hedged and settled with spot-market trades.

The prospectus also describes the 2014 genesis distribution of 72 million ether, including allocations to the public sale, Ethereum Foundation, and developers.

Pricing, Transparency, and Investor Information

The exchange publishes IIV every 15 seconds and real-time quotes as trading occurs. The Trust’s website posts prior day NAV, official closing price, daily holdings, and premium/discount statistics.

To maintain convenient trading ranges, the Sponsor may adjust the Share price through stock splits or reverse splits. Splits affect per-share NAV proportionally but do not change total net assets.

Tax Treatment (Prospectus Summary)

For U.S. federal income tax purposes, shareholders are expected to be treated as owning a proportionate share of the Trust’s assets. Sales or other dispositions of ether by the Trust—including using ether to pay expenses—are expected to be taxable events to shareholders. See the tax section of the prospectus for details.

Risk Snapshot

Speculative asset and volatility. Ether’s price can be highly volatile and affected by regulation, macro conditions, and market structure. An investment may result in total loss.

Premium/discount to NAV. Share price on exchange can deviate from NAV due to volatility, trading activity, market hours, and methodology.

Ongoing dilution from fees. Ether per share declines over time as ether is transferred to pay fees and liabilities.

Forks and airdrops forfeited. The Trust abandons forked or airdropped assets unless deemed “ether” by the Sponsor. Investors should not expect those benefits.

Custody and security. Security breaches, operational issues, or perceived breaches at the Custodian could harm the Trust and reduce demand for shares. No FDIC/SIPC insurance covers the ether.

Market structure risks. Stablecoin stress, de-pegging, or migration away from Ethereum can reduce ether demand and liquidity, impacting NAV and trading. The prospectus discusses Tether and USDC risk channels and notes an affiliate’s minority interest in USDC’s issuer and an affiliate’s role managing the Circle Reserve Fund.

AP and liquidity dependencies. Only APs can create/redeem. If AP or counterparty participation changes, premiums/discounts and liquidity can be affected.

Index methodology changes. The index provider can change constituent markets and methodology. Material changes are noticed via supplements or reports. Methodology aims to mitigate manipulation by using eligible markets and VWMP over 60-minute windows.

Governance and Regulatory Status

The Trust is a Delaware statutory trust with no fixed termination date.

The Sponsor can amend the Trust Agreement without shareholder consent, except amendments affecting the Trustee’s duties require the Trustee’s prior written consent. If the Trust terminates, assets are liquidated and cash proceeds distributed; shareholders are not entitled to receive ether.

The Trust is an “emerging growth company” under the JOBS Act and may follow reduced reporting requirements while it qualifies.

The Trust intends to use the extended transition period for new or revised accounting standards permitted to emerging growth companies.

Service Providers and Roles

Sponsor: FD Funds Management LLC. Creates and markets the Trust, pays normal operating expenses out of the unified fee except Extraordinary Expenses. Wholly-owned subsidiary of FMR LLC.
Trustee: CSC Delaware Trust Company. Serves to satisfy Delaware statutory trust requirements.
Administrator: Fidelity Service Company, Inc. Performs NAV calculation, accounting, tax, and reporting.
Transfer Agent and Cash Custodian: State Street Bank and Trust Company. Facilitates creations/redemptions and holds cash.
Custodian: Fidelity Digital Asset Services, LLC. Safekeeps all ether owned by the Trust.
Distributor: Fidelity Distributors Company LLC. Reviews and approves marketing materials and supports distribution functions.

FAQs

What is the ticker and listing venue? “FETH” on Cboe BZX.

What does the fund hold? Ether. It is valued using the same methodology as the Fidelity Ethereum Reference Rate.

What is the index calculation cadence? Every 15 seconds using a rolling 60-minute VWMP window across eligible spot markets.

Does the fund track forks or airdrops? No. The index excludes them, and the Trust irrevocably abandons forked or airdropped assets unless deemed “ether.”

How big is a creation/redemption unit? 25,000 shares per Basket.

Are creations/redemptions in kind or cash? As of the prospectus date, cash only. In-kind would require regulatory approvals.

What is the Sponsor Fee? 0.25% per year on Ether Holdings, accrued daily, paid monthly. Sponsor pays normal operating expenses; the Trust bears Extraordinary Expenses.

Does the Trust make distributions? The Trust does not anticipate making distributions.

Is there insurance on the ether? No FDIC/SIPC coverage. Any insurance the Custodian carries is for its benefit, not the Trust’s.

How is tax handled? Shareholders are expected to be treated as owning a proportionate share of the Trust’s assets; sales or use of ether to pay expenses are taxable events for shareholders. See the prospectus tax section.

Practical Use Cases and Constraints

The Sponsor states the Shares are designed to provide a cost-effective and convenient way to access ether’s price without buying, holding, or transferring ether directly. The Trust is passive and does not use derivatives. Consider the known tracking differences and premium/discount behavior.

Because the Trust does not capture forks or airdrops and because ether per share declines over time due to fees and expenses, long-horizon holders should factor in these structural drags when comparing to spot ether ownership.

Key Takeaways

Objective: Track ether via Fidelity Ethereum Reference Rate (VWMP, rolling 60 minutes, updated every 15 seconds).
Structure: Delaware statutory trust. Not a 1940 Act fund. Not a commodity pool. Sponsor not an investment adviser.
Holdings: Ether only. Passive. No derivatives.
Ticker and Trading: FETH on Cboe BZX; IIV published every 15 seconds; daily NAV after 4:00 p.m. ET.
Creations/Redemptions: 25,000-share Baskets. Cash-only as of the prospectus date. APs bear creation slippage versus Index.
Fee: 0.25% unified Sponsor Fee; Sponsor pays ordinary expenses; Trust bears Extraordinary Expenses.
Custody: FDAS as digital asset custodian; State Street as cash custodian and transfer agent. No FDIC/SIPC. SOC 1/2 reports support controls.
Forks/Airdrops: Abandoned unless deemed “ether.” Index does not track them.
Risks: Volatility, premium/discount to NAV, stablecoin and market-structure dependencies, custody/security events, AP and counterparty participation, and structural dilution from fees.

Source: Fidelity® Ethereum Fund Prospectus, July 31, 2025.

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Disclaimer: This explainer summarizes the current prospectus disclosures and is not investment, legal, or tax advice. Review the full prospectus and consult professional advisers before investing.