Three Avalanche ETFs Introduce Staking Reward Distribution Structure

Three Avalanche (AVAX) spot exchange-traded funds (ETFs) have integrated a staking reward structure into their asset holdings. Bitwise, VanEck, and Grayscale products not only hold AVAX but also present conditions for reward receipt, cash distribution, and liquidity management.

According to Bitwise's website, as of August 26, the Bitwise Avalanche ETF (BAVA) held 2,638,856.23 AVAX. The market value was $19,726,686.25 (approximately 2.71 billion KRW), with a target staking ratio of 70% and a current staking ratio of 57%. The sponsor fee is 0.34%.

On VanEck's website, as of August 27, the VanEck Avalanche ETF (VAVX) reported an AVAX holding of 1,823,393. The net assets were $13.67 million (approximately 1.88 billion KRW), and the expense ratio was 0.20%. The staking ratio was 80.16%, with a total staking yield of 4.63% and a net staking yield of 4.44%.

The Grayscale Avalanche Staking ETF (GAVA) follows a similar trend. Grayscale disclosed in its 10-Q filing as of June 30 that GAVA held 640,9890.86614991 AVAX, with a fair value of investment assets at $4.27 million (approximately 590 million KRW). Among these, the fair value of staked AVAX was $3.45 million (approximately 470 million KRW), indicating a staking ratio of about 81%.

The commonality among the three products is that they bundle spot holdings with staking rewards in one product. While previous spot ETFs were designed primarily around exposure to the underlying asset price, these products have incorporated network rewards into the fund management structure. Investors now have more comparison points, including not only the quantity held but also the staking ratio, reward distribution method, and fees.

Since its launch on April 14, BAVA has received 16,371.7148 AVAX in staking rewards by June 30. The reported holding at the end of the same period was 2,538,567.9222 AVAX. This indicates that the reward receipt structure has been reflected in actual management since shortly after the product's launch.

In a supplemental filing submitted to the SEC on June 25, VAVX stated that it plans to distribute staking net income in cash at least quarterly starting in July. The filing also included a note that it may sell staking rewards or some AVAX to secure the dividend funds. This suggests that the reward structure does not solely mean accumulating token holdings.

Grayscale announced in its SEC 8-K filing on August 6 that it amended its trust agreement to convert net cash from staking rewards into cash distributions at least quarterly. The company explained that the distribution size would vary based on the actual staking rewards received and costs, making it impossible to predict definitively.

The cost differences have already become apparent. The currently confirmed costs are VAVX at 0.20%, BAVA at 0.34%, and GAVA at 0.35%. Similar products trading on the same underlying asset have brought fees and reward processing methods to the forefront as competitive factors.

Staking involves a structure where tokens are entrusted to the validation process in a proof-of-stake network to receive rewards. Within the ETF, the recipient of rewards, the method of cost deduction, cash conversion, and investor distribution methods vary according to the product's terms and disclosures. Even if rewards are generated, the form in which they return to investors depends on the conditions of each product.

However, staking rewards are not guaranteed income. Bitwise and VanEck have stated that staking yields can fluctuate and may even be zero. The possibility that no positive income remains after deducting costs is also included in their disclosures.

Liquidity risk also accompanies this. Staked AVAX may not be immediately recoverable, and a certain level of liquidity reserves is necessary to respond to redemptions. The more assets are staked, the greater the reward opportunities may be, but the capacity to respond to redemptions must be managed separately.

Interpretations regarding the reward distribution structure may vary. While the disclosed staking rewards can serve as a source for investor distributions, conditions were also presented that some reward tokens or AVAX may be sold in the process of securing dividend funds.

This trend aligns with discussions on staking reward distribution that emerged earlier in Ethereum and Solana ETFs. We previously reported that Grayscale is pursuing a structure where net cash from staking rewards is distributed to shareholders at least quarterly in ETHE and GSOL. ETF issuers have begun to treat staking not just as an operational add-on but as a differentiating factor for their products.

Discussions have also taken place within the Avalanche ecosystem to adjust the reward structure itself. We reported that the Avalanche Foundation discussed ACP-285, which lowers the primary network staking reward floor from 10% to 7.5%. The reward distribution structure of ETFs may affect actual investor returns and market impact depending on future network reward rates, management fees, and cash conversion methods.