What the SEC’s staking ETF objection means for other proposals

The SEC’s move to halt proposed crypto ETFs that would allow staking likely won’t help or hurt other issuers’ efforts to unlock that feature for their own funds, industry watchers argue.

Registration statements for the Rex-Osprey ETH Staking ETF and the Rex-Osprey SOL Staking ETF went effective on May 30 “without resolution of staff comments,” the SEC wrote in a letter that day. 

The funds were structured as C-corporations, Bloomberg Intelligence analyst James Seyffart pointed out in a series of X posts. This “unique structure” would allow the funds to bypass the 19b-4 process, which requires self-regulatory organizations to propose rule changes to the SEC. 

The agency had requested that the fund issuers delay the effectiveness of the registration statements tied to these proposals, the agency’s division of investment management noted in the letter.

“As we have communicated to you on several occasions, commission staff continues to have unresolved questions whether the funds, if structured and operated as proposed, would be able to meet the definition of ‘investment company’ under the Investment Company Act,” the letter states.

An SEC spokesperson had no comment beyond the letter. REX Financial and Osprey Funds also declined to comment when reached. 

Seyffart told Blockworks he doesn’t think these actions mean the SEC is pushing against staking ETFs.

“This is more to do with the structure of these specific filings,” he added. “I believe the SEC is working more broadly toward a framework for staking in an ETF wrapper.”

Nate Geraci, president of The ETF Store, said this appears to be an issuer testing the SEC’s regulatory boundaries on crypto ETFs.  

“With a perceived pro-crypto tilt at the SEC, the downside risk for issuers pushing the envelope is relatively low,” he explained. “In an increasingly competitive crypto ETF landscape, where first-mover advantage can be significant, issuers are motivated to explore any potential edge.”

Read more: Amid volatility, a stable flow of SEC actions

Ultimately, this saga is “probably all for naught,” Geraci argued. 

“I expect the SEC to ultimately approve spot solana ETFs  — and staking within both spot solana and ether ETFs — likely by year-end,” he told Blockworks.

The securities regulator indicated in a May 28 filing that it would take more time to rule on Grayscale’s proposal to allow its two ether ETFs — the Grayscale Ethereum Trust ETF (ETHE) and Ethereum Mini Trust ETF (ETH) — to stake its holdings. The SEC has until October to rule on that.

“Institution of proceedings does not indicate that the commission has reached any conclusions with respect to any of the issues involved,” the agency filing notes. “Rather, the commission seeks and encourages interested persons to provide comments on the proposed rule change.”

SEC Commissioner Hester Peirce noted in a February statement that before greenlighting modifications to existing crypto ETFs — such as staking and in-kind creations and redemptions — “the commission may have to make progress on custody and other issues.”  

More recently, the SEC’s division of corporation finance shared its opinion on the protocol staking activities that it deems not to involve the offer and sale of securities.

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