Cboe BZX Exchange, according to an official filing on February 12, has requested that the US Securities and Exchange Commission allow stakes for 21Shares Core Ethereum ETF.
The ETF, if approved, would stake Ethereum (ETH), allowing investors the opportunity to earn staking reward.
The regulatory hurdles
Staking is integral to Ethereum’s proof-of-stake (PoS) consensus mechanism, where participants lock up ETH to validate network transactions and earn rewards.
Staking was explicitly banned by the SEC in 2024. Staking was cited as a concern that it could be a violation of federal securities laws. This is in line with the regulator’s broader position that staking services are similar to unregistered security offerings.
It was this position that led to the enforcement of laws against Coinbase as well as Kraken. They were both accused by authorities of illegally operating staking systems.
Cboe has proposed using the Cboe to reduce regulatory concerns “point-and-click staking.”This is a different approach to traditional staking where ETH would be transferred to a third party. Instead, the ETF can stake the holdings of its ETF wallet without having to move the assets.
This setup reduces the risk of theft, although it does not eliminate potential slashing penalties—a process where staked ETH is partially or fully forfeited due to network rule violations.
It also said that the firm’s decision to exclude staking is similar to a stock exchange traded product (ETP), which reduces dividends on its assets.
It asserts that staking ETH would enhance investor returns, improve the ETF’s ability to track Ethereum’s performance and optimize the fund’s creation and redemption process.
Does it have to be approved before you can use the product?
The filing is the first by a crypto ETF listed in the US to request staking rights. This could be a precedent that other funds will follow if they want to incorporate staking rewards in their offerings.
Recent leadership changes have led to a growing optimism, as some see the SEC becoming more open towards crypto-related products. Hester P. Peirce is a well-known advocate for cryptocurrency innovation. She has said that Ethereum ETFs are still a subject for discussion.
James Seyffart of Bloomberg ETF predicts that, if SEC approves or rejects the submission, it will happen around the end of October.
The move would reshape investment options for Ethereum and offer new possibilities for those investors looking to gain exposure through staking within an ETF.
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