SEC Reconsiders Staking in Crypto ETFs— Approve In Sight?

Representatives from crypto companies, Jito Labs and Multicoin Capital discussed the role of staking in proof-of-stake (PoS) blockchains, emphasizing its impact on investor returns and network security.

The SEC has previously required issuers to exclude staking from ETP applications, but recent developments suggest a possible shift in the regulator’s stance.

On February 5 it held a meeting to evaluate the inclusion of staking in crypto exchange-traded products (ETPs).

SEC Meets Jito Labs and Multicoin Capital to Discuss Staking in ETPs

During the SEC meeting, Jito Labs CEO Lucas Bruder and legal officer Rebecca Rettig joined Multicoin Capital’s Kyle Samani and Greg Xethalis.

The representatives from the crypto industry labeled stakeholding as essential for supporting Proof-of-Stake blockchains such as Ethereum (ETH) and Solana (SOL).

The industry representatives explained that stripping staking from ETPs damages investor benefits and diminishes network security protections.

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Valued validators secure blockchain networks through asset locking, which results in transaction fee and reward acquisition for both ETH and SOL.

Dry-token owners maintain that their assets become less profitable when staking is excluded from ETPs.

According to them, insufficient staking activity would create adverse effects that extend beyond the core blockchain system.

The SEC filing revealed that the discussion concentrated on staking importance with an assessment of potential integration approaches into ETPs.

The industry leaders agreed that existing regulatory frameworks can accommodate staking procedures after implementing suitable regulatory solutions.

During their discussion, industry experts presented new potential stakeholding approaches for SEC-regulated financial products to the regulatory body.

Industry Proposes Models to Address SEC Issues

SEC officials have expressed several issues about staking practices in ETPs, including delayed redemptions combined with tax uncertainties and securities law noncompliance.

The mandatory redemption duration of staking operations faces difficulties by clashing with the conventional T+1 settlement process for ETP issuers.

The unclear tax status of staking rewards makes potential adoption difficult because it complicates the process.

The initial filing documents for Ethereum ETPs included staking capabilities, which the SEC subsequently ordered to be deleted from the submission.

The authorities have conducted examinations of staking-as-a-service companies because they claim certain products demonstrate elements of securities regulation.

Security and Exchange Commission (SEC) has adopted a restrained approach toward staking due to concerns about its inclusion in investment products.

During their presentation to officials, the industry introduced two model structures that promise regulatory conformity.

Through the “Services Model,” third-party validators enable the derived stakeholder assets from ETPs while offering reliable redemption capabilities to investors.

Through the “Liquid Staking Token Model,” registered investment funds can reduce their risk using liquid staking tokens, improving staking integration and eliminating redemption timing problems.

SEC Reconsiders Staking in Crypto ETPs Approval

The SEC might change its regulatory position regarding staking within ETPs even if it previously opposed it.

The internal regulatory changes that brought pro-crypto Commissioner Mark Uyeda to lead as acting chairman could impact policy developments.

Commissioner Hester Peirce leads the newly established Crypto Task Force, demonstrating the SEC’s greater investment in the crypto industry.

According to Peirce in a previous statement, the SEC could alter its position regarding Ethereum exchange-traded funds (ETFs) staking by early 2025.

Organizations request more crypto-based financial products, which drives the SEC to establish new pathways for policymaking.

ETP’s staking offers better investor rewards and safeguarded regulatory oversight systems.

Bloomberg ETF analyst James Seyffart emphasized that this topic should have been discussed multiple years ago.

Although the regulator has shown a favorable attitude toward industry collaboration, he recognized that this should have started many years ago.

The SEC continues to discuss the approval of staking in ETPs, although it has not officially decided on this matter.