Hashdex’s supplemental prospectus filings submitted on July 23 disclosed that the staked rewards for its Nasdaq Chicago Board Options Exchange (Cboe) crypto index ETF (NCIQ) use a two-stage distribution mechanism: the staking service provider first retains fees; and any income above a threshold is allocated 40% to Hashdex and 60% to a trust established for common stockholders.
NCIQ’s two-stage staked rewards distribution mechanism
Staked rewards are distributed according to a three-tier priority order:
First tier (provider fees): staking service providers for each asset first retain fees (ETH: 8%, SOL: 8%, ADA: 5%)
Second tier (sponsor threshold): Hashdex obtains all remaining net staked income through sponsor shares until reaching an annual threshold of 0.25% of the common stock NAV
Third tier (excess distribution): net staked income above the 0.25% threshold is allocated 40% to Hashdex and 60% to a trust established for common stockholders
The threshold is calculated for each fiscal year; amounts for less than one year are calculated proportionally. Sponsor shares’ returns are calculated separately from the 0.25% annual management fee, and they are not netted against each other.
Provider fee structure for each asset: 8% for ETH and SOL
Based on the disclosures on Hashdex’s NCIQ product page, the provider fee structure for each asset is as follows:
Ethereum (ETH): 8% of total staking rewards as a service fee; as of July 26, ETH represented 11.75% of NCIQ holdings
Solana (SOL): 8% validator commission; represented 3.17% of NCIQ holdings
Cardano (ADA): 5% validator commission; represented 0.49% of NCIQ holdings
All three combined: represented about 15.41% of NCIQ holdings (this is the index position weight, not the actual staked principal amount)
Hashdex’s target staking range is 10% to 20% of the fund’s total NAV. By comparison, BlackRock’s Ethereum ETF (ETHB) staking commission is 18%, which is higher than NCIQ’s 8% for ETH.
FAQ
How much can NCIQ ETF common stockholders receive from staking rewards?
Common stockholders receive 60% of the excess net staked income above the 0.25% NAV threshold through the trust. Based on the prospectus example calculation: if net staked rewards reach 1% of NAV, the trust receives 0.45% and Hashdex retains 0.55%; if net staked rewards are equal to or below the 0.25% threshold, the trust receives no allocation.
What role does Coinbase Cloud play in NCIQ’s staking mechanism?
According to the 8-K filing on July 23, Coinbase Cloud is the initial staking service provider for NCIQ; the service is expected to launch soon, but is subject to operational readiness. Service fees are 8% for ETH and SOL and 5% for ADA, deducted in advance from total staking rewards.
What are the main risks associated with NCIQ’s staking activities?
The prospectus discloses three main risks: unbonding may temporarily lock up assets; validator failures or slashing may reduce rewards; these situations may cause tracking differences between NCIQ’s NAV performance and the index of its underlying price, but the filing does not quantify the potential magnitude of such differences.
