Solana ETFs: Powerful Push for Liquid Staking Gains Crucial Institutional Support

The landscape of cryptocurrency investments is rapidly evolving, with Solana ETFs at the forefront of a significant new development. A coalition of major players, including Solana infrastructure provider Jito Labs, asset managers VanEck and Bitwise, and other influential stakeholders, are making a compelling case to the US Securities and Exchange Commission (SEC). Their goal? To secure approval for liquid staking within proposed Solana exchange-traded products (ETPs).

What is Liquid Staking and Why Does It Matter?

For those new to the concept, liquid staking represents an innovative evolution of traditional cryptocurrency staking. In a nutshell, when you stake tokens, you typically lock them up to support a blockchain network’s operations and earn rewards. Liquid staking, however, offers a crucial advantage: it allows participants to stake their tokens with a validator while simultaneously receiving a derivative token, often called a Liquid Staked Token (LST), in return. This means your original tokens are not truly ‘locked up’ in the traditional sense.

• Capital Efficiency: LSTs can be traded, used in decentralized finance (DeFi) protocols, or even loaned out, unlocking capital that would otherwise be idle.

• Flexibility: Investors gain more flexibility over their assets, enabling them to participate in network security while maintaining liquidity.

• Network Security: By making staking more appealing and accessible, liquid staking can encourage greater participation, potentially enhancing the security and decentralization of the underlying blockchain network.

While offering significant benefits, it’s important to acknowledge that liquid staking also introduces additional layers of complexity and risk compared to traditional staking. These include potential smart contract vulnerabilities, depegging events where the LST loses its peg to the underlying asset, and slashing risks if the validator misbehaves.

The Powerful Push for Institutional Support

The appeal to the SEC is not coming from a single entity but a united front of prominent organizations, including the Solana Policy Institute and Multicoin Capital Management. Their collective argument centers on how liquid staking can significantly improve the operational efficiency and attractiveness of Solana ETPs for institutional investors.

One primary argument highlighted in their letter to the SEC is the ability of liquid staking to prevent forced rebalancing for ETP issuers. If issuers were compelled to limit staking to a fixed percentage of assets, large inflows or outflows (creations and redemptions) would necessitate costly rebalancing acts. This process can increase operational expenses for the ETP and potentially lead to tracking errors, where the ETP’s performance deviates from its underlying asset.

The stakeholders assert that LSTs could facilitate rapid rebalancing in such scenarios, or even be delivered or received in-kind by authorized participants. This operational fluidity is a key selling point for asset managers seeking to minimize friction and maximize returns in their investment products. Beyond operational benefits, the letter also points to increased network security, a wider array of product options for investors, and additional revenue streams for ETP issuers as compelling reasons for approval.

Navigating SEC Guidance: Risks and Regulations

The US Securities and Exchange Commission has a complex relationship with crypto assets, and their stance on staking has been evolving. While the SEC has offered some commentary on traditional staking, suggesting it may not constitute a securities offering if directly tied to a consensus process, they have not yet issued formal SEC guidance specifically addressing liquid staking. This lack of clear regulatory framework creates uncertainty for asset managers and potential investors.

The SEC’s primary concern often revolves around investor protection. When evaluating liquid staking, the commission will likely scrutinize the additional risks involved. These include:

• Smart Contract Bugs: The reliance on complex smart contracts introduces the risk of vulnerabilities or exploits that could lead to loss of funds.

• Depegging Events: LSTs are designed to maintain a close peg to the underlying staked asset. However, market volatility or protocol issues could cause a depegging, leading to investor losses.

• Slashing Risks: While typically covered by the staking protocol, there’s always a theoretical risk of a validator misbehaving and a portion of the staked tokens being ‘slashed’ or penalized.

• Centralization Concerns: The concentration of staking power within a few liquid staking protocols could raise decentralization concerns for the network.

Currently, at least nine Solana (SOL) ETP applications are awaiting a decision from the SEC. The outcome of this appeal regarding liquid staking could significantly influence their approval and structure.

Beyond Solana: The Broader Impact on Crypto ETPs

The debate around staking in ETPs extends far beyond Solana. The broader landscape of crypto ETPs is also heavily influenced by this discussion. Issuers of Ether (ETH) funds, for instance, are similarly seeking approval for staking features within their products. Nasdaq, for example, filed applications with the SEC to allow staking in BlackRock’s iShares Ether ETF and Grayscale’s Ether fund.

Many analysts are bullish on the prospect of adding staking to Ether ETFs, believing it could trigger a substantial influx of institutional capital into these funds. BlackRock’s head of digital assets, Robbie Mitchnick, even noted in March 2025 that while their Ether ETF had been successful, it felt ‘less perfect’ without the inclusion of staking rewards. This sentiment underscores the perceived value and demand for staking yield among sophisticated investors.

The SEC’s eventual decision on liquid staking for Solana ETPs will set a precedent that could impact the entire cryptocurrency ETP market. It will shape how future crypto investment products are structured and what features they can offer to investors, potentially opening new avenues for capital deployment into the digital asset space.

A Pivotal Moment for Crypto Investment

The push for liquid staking in Solana ETFs marks a pivotal moment in the evolution of institutional crypto investment. The collective voice of major industry players advocating for this feature highlights its perceived benefits in terms of capital efficiency, network security, and enhanced product offerings. While the SEC continues to deliberate, balancing innovation with investor protection, the outcome of this appeal will undoubtedly shape the future of crypto ETPs, potentially unlocking new opportunities for investors and further integrating digital assets into traditional finance. The decision will be closely watched by the entire crypto community, eager to see how this crucial element of decentralized finance finds its place within regulated investment vehicles.