SEC Halts Staking Crypto ETFs Amid Regulatory Questions
The U.S. Securities and Exchange Commission’s move to halt proposed exchange-traded funds (ETFs) allowing investors to stake Ethereum (ETH) and Solana (SOL) is unlikely to provide broad insight into the viability of staking features in other cryptocurrency funds, according to industry observers.
Registration statements for the Rex-Osprey ETH Staking ETF (BOXEX) and Rex-Osprey SOL Staking ETF (BOXES) became effective on May 30, 2024, “without resolution of staff comments,” the SEC stated in a letter dated that day. Bloomberg Intelligence analyst James Seyffart highlighted Bloomberg ETF’s unique structure as C-corporations, allowing them to bypass the standard 19b-4 rule change process typically required for new investment company structures.
In the letter, the SEC’s Division of Investment Management noted its request that the fund issuers, Rex Financial and Osprey Funds, delay the effectiveness of the registration statements linked to the proposals.
The SEC cited ongoing, “unresolved questions” in its letter, questioning whether the funds, if structured and operated as proposed, would qualify for an exemption from the Investment Company Act of 1940, specifically the definition of an “investment company.”
A SEC spokesperson provided no further comment beyond the letter. Rex Financial and Osprey Funds declined comment.
Despite the SEC’s action, Seyffart told Blockworks that these specific events do not necessarily signal broader opposition to staking ETFs. He characterized the situation as being “more to do with the structure of these specific filings,” suggesting the SEC is working towards establishing a more general regulatory framework for staking features within ETFs.
Nate Geraci, president of The ETF Store, offered a differing view, interpreting the SEC’s move as an example of issuers testing the regulator’s boundaries in the crypto space.
“With a perceived pro-crypto tilt at the SEC, the downside risk for issuers pushing the envelope is relatively low,” Geraci explained. “In an increasingly competitive crypto ETF landscape, where first-mover advantage can be significant, issuers are motivated to explore any potential edge.”
Geraci ultimately argued the current developments are “probably all for naught” and expects the SEC to approve staking features in spot Ethereum and Solana ETFs by the end of the year.
The SEC’s stance on adding staking features was implicitly supported weeks earlier in a May 28 filing regarding Grayscale’s proposal to permit its existing Ethereum ETFs (ETHE/ETH) to stake. The Commission indicated it would take time to rule and encouraged comment.
SEC Commissioner Hester Peirce has previously stated the agency needs progress on issues like custody before greenlighting modifications like staking for existing crypto ETFs. A recent opinion from the SEC’s Division of Corporation Finance also defined certain protocol staking activities as not amounting to a securities offering.
