VanEck’s Avalanche ETF filing promises AVAX staking income — and new trade-offs for investors

VanEck files an Avalanche ETF that would pass staking rewards to shareholders

VanEck has filed for an exchange-traded fund that would hold Avalanche tokens and give investors a share of the network’s staking rewards. The filing says the fund would use a third-party staking provider to run validator nodes and that rewards earned on staked AVAX would flow to the fund, after a service fee. For investors, that means the ETF would try to turn passive token exposure into a yield-bearing product while still trading like a regular ETF.

The move is significant because it explicitly combines two ideas that many investors have wanted: a familiar ETF wrapper and the ability to earn staking rewards without managing keys, validators or the technical plumbing. But the filing also makes clear the fund would rely on external custody and operations, and that those choices carry costs and risks that could matter to returns and taxes.

How staking will be run inside the ETF — Coinbase as the initial provider and fee structure

Under the filing, the fund would not run its own validator infrastructure. Instead, it names Coinbase (COIN) as the initial staking services provider. That means Coinbase would operate the validator nodes and handle the technical work of staking AVAX on behalf of the fund. Rewards generated by nodes would be collected and credited to the fund’s net asset value.

The filing specifies a service fee on staking rewards — roughly four percent of the gross rewards. That fee is taken before rewards are added to the fund’s assets. In practice, the fund’s NAV would grow as validators earn rewards, but that growth would reflect rewards net of the provider fee and any operating costs the fund discloses.

Because the fund holds tokens and receives staking rewards in the same asset, those rewards would be added to the fund’s token holdings and reflected in NAV rather than paid out as an immediate cash dividend. Shareholders would therefore see the benefit through NAV appreciation and possible periodic distributions if the fund chooses to make them.

What staking rewards mean for returns, fees and taxes

Staking can increase the effective yield for holders because validators pay out newly issued tokens or transaction fees to stakers. For ETF investors, that is a clear potential upside: you get token price exposure plus a stream of newly minted tokens that should boost total returns over time, all without needing to manage keys.

But the service fee reduces the gross yield. A roughly 4% cut of staking rewards means the actual benefit to shareholders will be noticeably smaller than headline reward rates. In addition, the fund will charge its own management fee and trading costs, which together create a drag on returns that investors should weigh against the incremental yield from staking.

Taxes add another wrinkle. The filing suggests rewards will be accrued to the fund and increase NAV, which likely changes the timing and nature of taxable events for shareholders compared with buying AVAX on an exchange and self-staking. Depending on the fund’s distribution policy, investors could face taxable income when the fund distributes rewards or capital gains when they sell shares. The exact tax outcome will depend on how the fund treats accrued rewards and how tax authorities classify staking income.

Where this fits in the crypto ETF wave and how other products compare

VanEck’s move comes amid growing competition to package crypto exposure into ETF structures that are familiar to mainstream investors. Earlier product filings and launches have included passive spot-token ETFs and a handful of funds that either promise staking or work with custodians that offer yield. VanEck’s filing is notable because it names a major U.S. exchange custodian and staking service as the operator—something institutional investors will watch closely.

Other products have taken different approaches: some simply hold tokens and rely on market price moves; others promise yield but leave operational details vague. A staking-enabled ETF that transparently names its provider and fees could appeal to investors who want yield plus the legal and trading convenience of an ETF. But it will also compete on costs and trust—whether investors prefer lower fees or the convenience of an ETF that aggregates staking operations.

Key operational and crypto-specific risks investors should weigh

Staking inside an ETF brings risks that are unusual for traditional funds. One is slashing: if a validator misbehaves or a protocol punishes incorrect node behavior, the staked tokens can be partially lost. The filing says the provider will manage validators, but it doesn’t eliminate the risk that slashing or other protocol penalties could reduce the fund’s assets.

Custody and counterparty risk is another big factor. The fund will rely on a custodian and a staking operator to hold and run tokens. That centralises risk: if the provider suffers a cybersecurity breach, insolvency, or regulatory action, the fund’s assets could be affected. Liquidity and valuation are also relevant—large withdrawals, market stress, or on-chain congestion could make it harder for the fund to transact without moving prices.

Finally, regulatory uncertainty looms. Given shifting policy on crypto in the U.S. and overseas, rules on staking income, custody, and product approvals could change. That might influence the fund’s operations, fees, or even its ability to market to certain investors.

Timeline and what to watch before the ETF launches

The filing starts a formal SEC review process, but it does not mean a fast launch. Investors should watch for SEC comment letters, responses from VanEck, and any public statements from the named provider about technical terms and safeguards. Key signals will include whether the SEC requests more detail on custody and slashing protections, and how quickly VanEck can address those questions.

Other things to monitor: whether Coinbase or any other nominated provider clarifies operational SLAs and insurance, the fund’s stated fee schedule beyond the staking cut, and how the fund plans to handle tax reporting for accrued rewards. Finally, market demand after launch will tell the clearest story—if inflows are strong, it will signal real appetite for a staking-enabled ETF; weak demand would suggest investors prefer lower-cost or simpler ways to get AVAX exposure.

For now, VanEck’s filing is a concrete step toward a product many investors have asked for: ETF-style access to crypto plus staking rewards. It promises extra yield, but not without new fees and crypto-specific risks that will shape how attractive the product turns out to be.

Sources

• coindesk.com