New ETF Structure Aims to Generate Yield Through Staking AVAX Holdings
Bitwise Asset Management has submitted an amended S-1 registration statement to the U.S. Securities and Exchange Commission for a spot Avalanche AVAX ETF that incorporates staking. The filing, dated November 27, 2025, outlines a new approach to crypto-based exchange-traded funds.
The proposed exchange-traded fund, with the ticker symbol BAVA, seeks to offer investors exposure to the price of AVAX, the native token of the Avalanche blockchain. In addition to tracking the spot price, the ETF aims to generate additional returns by staking a portion of its holdings on the network.
This development follows an initial filing in September 2025. The product is positioned as a potential addition to the U.S. crypto ETF market, with a targeted launch in the first quarter of 2026 on the NYSE Arca exchange.
Details of the Latest Filing
The amended S-1 filing updates the original submission by introducing staking as a key feature. The ETF is structured as a grantor trust under the Bitwise ETF Trust, which provides tax treatment that treats shareholders as direct owners of the underlying AVAX tokens. This structure ensures that any income from staking flows through to investors. The fund's primary objective is to track the spot price of AVAX, with staking serving as a secondary mechanism to enhance returns. Bitwise has indicated that the ETF will hold AVAX in segregated accounts, and the sponsor will manage staking activities without engaging in active trading.
The filing specifies that the ETF will launch with an annual management fee of 0.34 percent, covering operational costs, including staking-related costs. To encourage initial investments, Bitwise plans to waive this fee entirely for the first month on up to $500 million in assets. This fee is lower than those proposed by competitors, such as VanEck's 0.40 percent and Grayscale's 0.50 percent for their respective Avalanche ETF proposals. The document also notes that the fund will not use leverage or derivatives, focusing instead on direct AVAX holdings.
Custody arrangements are detailed extensively in the filing. Coinbase Custody will maintain the private keys for the AVAX holdings in cold storage using hardware security modules. The accounts are segregated to prevent commingling with other assets, and there is no FDIC or SIPC insurance coverage. The custodian has an addendum to its agreement that allows for staking facilitation, but it limits liability for certain losses to $5 million.
Staking Mechanics in the Bitwise Avalanche AVAX ETF
Staking is a core component of the proposed ETF, enabling the fund to participate in Avalanche's proof-of-stake consensus mechanism. The filing states that the trust will stake some or all of its AVAX holdings, excluding a liquidity reserve, by delegating tokens to validators operated by staking agents. One such agent mentioned is Attestant, Ltd., which became an affiliate of Bitwise on November 25, 2025.
The process involves escrowing AVAX on the Avalanche network for a lockup period ranging from 2 weeks to 1 year, as determined by the validators. During this time, the staked tokens help secure the network by proposing and validating blocks. The fund's sponsor selects trusted staking agents, and the custodian handles the staking requests without transferring AVAX to the agents' wallets. This setup aims to maintain security and avoid rehypothecation.
There is no fixed cap on the percentage of AVAX that can be staked, but the filing describes a liquidity reserve of unstaked tokens, initially set at 30 percent of holdings. This reserve can be adjusted monthly based on factors like redemption volumes, market volatility, and on-chain liquidity data. In practice, Bitwise anticipates staking a substantial portion, potentially up to 70 percent, while aggregating stakes across multiple validators to comply with network rules. These rules include a minimum of 2,000 AVAX and a maximum of 3 million AVAX per validator. The exact percentage staked will be disclosed daily on the ETF's website.
Risks Associated with Staking in the Avalanche AVAX ETF
The amended filing includes detailed risk disclosures related to staking. Operational risks include downtime or failures of validators, which could result in the forfeiture of rewards. If a validator goes offline, the trust may lose some or all of its expected rewards.
Agent or custodian errors, including insolvency, could lead to losses, though liability is capped in some cases.
Liquidity risks arise from the lockup periods, which may delay redemptions if the liquidity reserve proves insufficient. In such scenarios, the fund has a contingent liquidity arrangement to exchange staked AVAX for unstaked tokens at a market spread, potentially causing premiums or discounts to the net asset value or even temporary redemption suspensions.
Network and cyber risks are also highlighted. Hacks, protocol vulnerabilities, or attacks on the Avalanche network could result in permanent losses. Currently, the network does not implement slashing, but future governance changes could introduce it.
Tax and regulatory risks include the possibility that staking rewards are treated as ordinary income without corresponding cash payouts. Non-compliance with IRS Revenue Procedure 2025-31, issued on November 10, 2025, could affect the grantor trust status. This procedure provides a safe harbor for grantor trusts engaging in staking without being deemed to conduct a trade or business.
Other risks encompass quantum computing threats to cryptography, exchange hacks, and reduced network adoption if widespread staking deters independent validators. All AVAX holdings, staked or unstaked, are uninsured against theft or loss.
Conclusion
The Bitwise filing for the Avalanche AVAX ETF outlines a product that combines spot price tracking with staking to generate yields, structured as a grantor trust with Coinbase as custodian. It details mechanics such as delegation to validators, a 30 percent initial liquidity reserve, and potential rewards, while disclosing risks including operational failures, liquidity constraints, and regulatory uncertainties.
Competitors like VanEck and Grayscale currently lack similar yield-generating features, and this proposal builds upon Bitwise's experience with European ETPs. This submission reflects ongoing efforts to integrate blockchain-native returns into regulated U.S. investment vehicles, underscoring the role of recent IRS guidance in enabling such structures. Investors are advised to review the full S-1 filing for complete details before considering participation.