SEC Explores Staking in Crypto ETPs with Jito Labs and Multicoin Capital

In a latest development, on February 5, the SEC’s Crypto Task Force, led by Commissioner Hester Peirce, met with Jito Labs and Multicoin Capital to discuss adding staking as a feature in crypto exchange-traded products (ETPs), according to an SEC memo. This meeting is part of the SEC’s ongoing push to shape a clear and structured regulatory framework for cryptocurrency investments.

Integrating Staking Into Crypto-Based ETPs

On February 14, the U.S. SEC’s Crypto Task Force released a memorandum revealing the meeting. The discussion, held on February 5, focused on integrating staking into crypto-based ETPs. Attendees included Jito Labs CEO Lucas Bruder, CLO Rebecca Rettig, and Multicoin Capital Managing Partner Kyle Samani, along with General Counsel Greg Xethalis.

Notably, the discussion centered on two main topics: whether staking could be added to crypto ETPs and how it could be implemented. “We believe first that including staking as a feature
in certain ETPs will benefit investors, more accurately reflect the benefits of native network assets
and permit issuers to support the security of the networks in which the assets operate,” the filing read.

“The Two Viable Paths”

Notably, the task force is considering two options for staking in ETPs: one is allowing a portion of the assets to be staked via service providers running validators while still allowing timely redemptions, and the other is minting a liquid staking token for each staked asset.

“Restricting staking in cryptoasset ETPs harms (i) investors, by crippling the productivity of the underlying asset and depriving investors of potential returns, and (ii) network security, by preventing a significant portion of an asset’s circulating supply from being staked,” the meeting notes read.

As per the documents, the SEC has been cautious about staking ETFs for three main reasons. The lockup “unbonding periods” could conceivably slow down the redemption process for investors and complicate tax implications. There is also uncertainty around whether staking as a service counts as a securities transaction.

Recently, the CBOE BZX Exchange has filed a Form 19b-4 with the SEC, proposing to allow staking within the 21Shares Core Ethereum ETF. This is the first formal request for such a feature in an ETF, following the SEC’s approval of spot Ethereum ETFs last year.