SEC Flags Concerns on Crypto ETFs Offering Staking Rewards
A potentially watershed effort to launch US crypto exchange-traded funds that offer staking rewards is raising regulatory doubts, even after the funds said they received initial SEC registration approval.
Issuers REX Financial and Osprey Funds are targeting to launch ETFs tracking Ethereum and Solana that offer staking exposure, allowing investors to earn rewards by pledging tokens to help operate the blockchain. US regulators are expressing concern the vehicles may not legally qualify as ETFs under federal securities law.
In a letter sent to ETF Opportunities Trust — the legal entity issuing various ETFs including those managed by firms like REX — SEC staff indicated the two ETFs may not meet the legal definition of an investment company, a necessary designation for listing in the stock market. Concerns were raised about the "improper filing" of their registration statement and potentially misleading disclosures regarding their status as investment companies.
Greg Collett, general counsel at REX Financial, stated, “We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that.” The SEC did not comment beyond the letter.
SEC Commissioner Caroline Crenshaw, the commission’s lone Democrat and frequent critic of its crypto regulation stance under President Donald Trump, commented on the situation's reflection of the agency’s recent piecemeal approach. During his reelection campaign, Trump promoted digital collectibles and crypto, positioning the US as the “crypto capital of the planet.”
Since February, SEC staff have clarified that crypto assets like memecoins and stablecoins aren’t securities and thus fall outside their jurisdiction. Yet, firms see registration opportunities with the SEC to launch new products, according to Crenshaw’s Saturday statement.
If you’re confused, join the club, she remarked, questioning why crypto assets aren’t securities concerning registration requirements but are treated as securities when a new product is to be sold.
Recently, the SEC publicly expressed doubt regarding an ETF by State Street Corp. and Apollo Global Management that invested in private credit, rebuking it hours after listing. Bloomberg Intelligence ETF analyst James Seyffart believes that even if the SEC blocks this particular structure, straightforward attempts to allow staking in a US ETF will eventually succeed.
REX reported receiving effective registration for the two ETFs, meaning they could be listed anytime with a planned launch by mid-June. The SEC indicated that, depending on the resolution of concerns, it might consider the appropriate steps to ensure compliance with federal securities laws.
This article has been published in bloomberg.com via Yahoo News.
