SEC ruling eases path for Ethereum staking in ETFs

The US Securities and Exchange Commission (SEC) has issued new guidance clarifying that common forms of crypto staking do not fall under securities laws.

On May 29, the SEC’s Division of Corporation Finance confirmed that those participating in staking activities, including self-staking, delegated staking, custodial, and non-custodial forms, are not required to register these actions with the financial regulator.

The financial regulator stated:

“It is the Division’s view that participants in Protocol Staking Activities do not need to register with the Commission transactions under the Securities Act, or fall within one of the Securities Act’s exemptions from registration in connection with these Protocol Staking Activities.”

The update also addresses the use of related services. According to the SEC, providing features such as early withdrawal options, bundled rewards, slashing protection, or asset aggregation to meet minimum staking thresholds does not automatically classify these arrangements as securities offerings.

The agency emphasized that such enhancements do not alter the fundamental nature of staking under federal law.

Staking is integral to blockchain networks running a proof-of-stake () consensus mechanism, where participants lock up their tokens to validate network transactions and earn rewards.

This process has generally proven contentious over the years as the SEC, under former Chair Gary Gensler, pursued legal actions against firms participating in the activity.

SEC commissioners react

SEC Commissioner Hester Peirce, a long-time advocate for clearer crypto regulation, supported the decision. She described staking as an essential part of proof-of-stake systems, where users contribute to network security by voluntarily locking up their tokens.

Peirce stressed that regulatory uncertainty has discouraged American users from engaging with these networks, despite their importance to blockchain infrastructure.

She said:

“The Division’s statement is applicable to persons who self-stake certain covered crypto assets on a proof-of-stake or delegated proof-of-stake network.”

However, not everyone at the Commission agreed. Commissioner Caroline Crenshaw criticized the staff’s interpretation, warning that it strays from legal precedent.

She argued that the Howey Test, a key legal standard used to identify securities, was overlooked in the analysis.

Crenshaw added:

“This is yet another example of the SEC’s ongoing ‘fake it ‘till we make it’ approach to crypto – taking action based on anticipation of future changes while ignoring existing law.”

What does this mean for ETFs?

The SEC’s position could have significant implications for spot Ethereum exchange-traded funds, which are currently barred from staking their assets.

Nate Geraci, president of the ETF Store, noted that this guidance removes a major regulatory obstacle for funds seeking to stake Ethereum or other proof-of-stake assets.

However, Geraci pointed out that further clarity is still needed from the Internal Revenue Service (IRS), particularly around how staking rewards will be treated within the grantor trust structures typically used by ETFs.

If staking integration into these ETFs proceeds smoothly, it could unlock a new revenue stream for investors and enhance the appeal of crypto investment products within regulated markets

Meanwhile, Ethereum ETFs have been gaining momentum regardless, posting nine consecutive days of inflows totaling over $480 million.

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