SEC Warning: Staked Solana, Ethereum Funds May Not Qualify as Crypto ETFs
The regulatory landscape for digital assets continues to evolve, and the latest development involves the United States Securities and Exchange Commission (SEC) casting a critical eye on proposed staked Solana (SOL) and Ethereum (ETH) funds. This move has significant implications for the potential approval of the first-ever staked Crypto ETF products in the U.S. market.
SEC Scrutiny on Fund Structure
The SEC recently responded to effective registration amendments filed by REX Financial and Osprey Funds for their proposed staked SOL and Ether funds. The core of the SEC’s concern centers on the unique corporate structure these funds propose to use.
According to reports, the issuers intend to use a c-corp business structure. This is notably unusual for exchange-traded funds and appears to conflict with the SEC’s 6C-11 rule, often called “the ETF rule.” This rule outlines the permissible corporate structures for funds seeking ETF status.
In a letter dated May 30, the SEC explicitly stated:
- “As we have communicated to you on several occasions, Commission staff continues to have unresolved questions about whether the Funds, if structured and operated as proposed, would be able to meet the definition of ‘investment company’ under the Investment Company Act.”
- “Disclosures in the registration statement regarding the Funds’ status as investment companies may be potentially misleading.”
Essentially, the SEC is questioning if the proposed structure allows these funds to legally qualify as investment companies under existing regulations, which is a prerequisite for ETF status.
The Staking Question and Regulatory Delays
This development comes amidst broader discussions about crypto Staking and its regulatory treatment. While the SEC has provided some guidance suggesting that staking itself might not always constitute a securities transaction, the path for investment products built around staked assets, like a staked Ethereum or Solana fund, remains complex.
Despite the filing amendments, the SEC continues to delay decisions on various altcoin and staked ETF applications. Market analysts like Bloomberg’s James Seyffart note that these delays are not uncommon in the ETF approval process. Many such filings have final decision deadlines set much later in the year, often in October, making early approvals rare.
Analyst Outlook and Market Impact
Despite the SEC’s expressed concerns, there remains a degree of optimism among some observers and the issuers themselves. Bloomberg ETF analyst Eric Balchunas reported that REX’s legal team believes they can address the SEC’s structural concerns.
Balchunas also highlighted that issuers are actively “pushing the envelope hard in an effort to get first to market.” This suggests a competitive drive within the industry to be the first to offer innovative crypto investment products.
The market continues to watch these developments closely. The approval of staked altcoin ETFs, including those focused on Solana and Ethereum, is widely seen as a potential catalyst for bringing significant fresh liquidity from traditional finance into the crypto ecosystem. Investors and traders are eager for more regulated avenues to gain exposure to these assets and their staking yields.
Conclusion: Navigating the Path for Staked Crypto ETFs
The SEC’s response to the REX-Osprey filings underscores the ongoing challenges in bringing novel crypto investment products to market within the existing regulatory framework. While the issuers face hurdles regarding their proposed fund structure and its alignment with the “ETF rule,” the situation is dynamic. The industry is actively seeking ways to meet regulatory requirements while offering products that capture the unique aspects of digital assets like staking. The coming months will be crucial in determining if and how staked Crypto ETF products can successfully navigate the regulatory landscape in the United States.
