The US Securities and Exchange Commission’s (SEC) Crypto Task Force met with industry representatives on Feb. 5 to explore potentially including staking in crypto exchange-traded products (ETPs).
Multicoin Capital general counsel Greg Xethalis, Multicoin Capital managing director Kyle Samani as well Jito Labs’ CEO Lucas Bruder attended.
The companies argued in an SEC filing that staking, as defined by the blockchain network Proof-of-Stake (PoS), is inherent to Ethereum (ETH) or Solana.
Staking allows network validators to lock up native assets — such as ETH or SOL — to participate in the network’s consensus mechanism. In return, validators receive transaction fees and new tokens.
Representatives of the industry claim that by excluding ETPs from staking, investors are prevented from maximizing their returns on PoS-based assets.
SEC: Overcoming concerns
Staking ETPs has been a source of concern for the SEC, which includes redemption deadlines that may disrupt the T+1 standard settlement cycle. Other concerns include the taxation of rewards from staking and the classification of staking services as securities offerings.
The SEC was prompted by these concerns to adopt a cautious approach when it came to allowing staking within ETP structures. Initial Ethereum ETP applications included staking features, but issuers were required to remove them at the SEC’s request.
To mitigate the SEC’s fears, industry players presented two models during the meeting that could facilitate staking within ETPs while addressing the regulator’s key concerns.
The second is the “Services Model,”This would enable a part of the ETP assets held by third party service providers to be staked via validator nodes run by these companies. The method allows for redemptions while maintaining the staked assets.
This is followed by the second option. “Liquid Staking Token Model,”ETPs are required to hold liquid stake tokens, which represents the assets that have been staked. A Solana ETP, for example, could contain JitoSOL which is a liquid-staking derivative.
The second model reduces concerns about redemption time and simplifies the stake process within an ETP by not involving you directly in staking.
The SEC was assured by industry representatives that the two models would effectively resolve these issues. The Services Model provides for controlled stake exposure to ensure redemptions can be met quickly, while the LST Model eliminates any direct effect of staking on redemption cycles.
The stance shift
Despite the SEC’s historical concerns about including staking in crypto ETPs, recent developments suggest the regulatory body may be open to reconsidering its stance.
One key development is the regulator’s internal changes, including the nomination of pro-crypto Commissioner Mark Uyeda as the SEC’s acting chairman.
The regulator subsequently established a Crypto Task Force led by pro-crypto Commissioner Hester Peirce. This task force is tasked with creating a framework to regulate crypto. Peirce has Previously hinted Changes brought about by the crypto SEC “early on”In 2025, the inclusion of stake in Ethereum Exchange-Traded Funds (ETF) will be included.
The study of tools to help institutional investors is underway. Options in the spot Bitcoin ETF (BTC) is one example. The SEC is yet to make a final decision, but the discussions indicate a potential shift in the regulatory outlook.
James Seyffart is a Bloomberg ETF Analyst The following are some of the ways to get in touch with each other Although these discussions were supposed to have taken place “years ago,” the regulator’s interest in this matter is a good start.
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