06-09-2025 
|
Getting your Trinity Audio player ready...
|
The Securities and Exchange Commission (SEC) has written to the owner of two proposed exchange-traded funds (ETFs), warning that the staking components of their products may make them ineligible for a regulated exchange listing.
The two funds, one intended to be based on Solana and the other on Ethereum, were formally proposed in January by ETF Opportunities Trust, a special-purpose vehicle for launching ETFs. In this instance, it represents REX-Osprey, a joint venture and the ultimate proposer of the funds.
What sets these funds apart is that their construction allows for their digital assets to be ‘staked’—in other words, deployed to the network’s consensus mechanism—in exchange for further rewards.
The initial filing was made on January 21, with a designated ‘go-live’ date of May 30. In the intervening months, the Trust went back and forth with the SEC over the specifics of the proposals, which apparently involved the Trust repeatedly tweaking the disclosures made to the SEC. When the May 30 effective date came and went, the Trust had still not resolved all of the SEC’s queries, according to a warning letter sent by the SEC last week.
At the heart of the SEC’s concerns is whether the funds meet the definition of an ‘investment company’ under the Investment Company Act in light of the proposed staking functionality. Any fund seeking SEC approval for exchange listing must comply with this definition. Under the Act, an ‘investment company’ is defined as:
“any issuer… which is or holds itself out as being primarily engaged, or proposes to engage primarily, in the business of investment, reinvesting or trading in securities.”
The SEC apparently feels that the staking proposed by the REX-Opsrey ETFs would remove the funds from that definition.
Though not explicitly linked, the SEC’s trepidation can be speculated to stem from recent, sweeping guidance issued by the regulator, which suggests that staking activities definitively do not meet the definition of ‘securities’ such that they would be regulated by the SEC. Though the industry celebrated this as a manifestation of the SEC’s new pro-crypto bent, it may have had the unintended effect of making it more difficult to get approval for staking-enabled ETFs.
Staking is becoming the new battleground between the new and old regulatory approachesIf the SEC allows staking ETF-bound digital assets, it would be the latest expansion of crypto’s role in traditional financial product models. Certain sectors of the industry have eagerly anticipated such expansion with the arrival of the Trump administration and the appointment of a more crypto-positive SEC Chair in Paul Atkins.
Previous Chair Gary Gensler had indicated that digital assets that offer staking may cross over into the securities definition. However, after industry pressure earlier this year, the SEC issued new guidance in May that, though non-binding, indicated that the regulator would not view staking as a securities product.
Notably, the latest SEC guidance drew criticism from within the SEC itself. Commissioner Caroline Crenshaw accused the guidance of taking a ‘fake it till you make it’ approach to regulation, pointing out that well-trodden securities rules have already been applied to staking services and, in some cases, have found them to qualify as securities.
“This is yet another example of the SEC’s ongoing ‘fake it till we make it’ approach to crypto – taking action based on anticipation of future changes while ignoring existing law,” wrote the Commissioner.
It’s at least arguable that Crenshaw’s criticisms are borne out in the hold-up in approving the REX-Osprey ETFs, which presumably would have found an easier path to approval if the SEC considered staking a securities activity.
Watch: Breaking down solutions to blockchain regulation hurdles
Recommended for you
