Spot Ether ETFs: No Staking Allowed

As issuers gear up for potential approval of spot ether (ETH) exchange-traded funds (ETFs), recent filings emphasize a clear commitment to the Securities and Exchange Commission (SEC): no involvement in staking ETH. Staking is the process of depositing ETH to help secure the Ethereum blockchain, offering yield as a return, but this will be explicitly avoided in the proposed funds.

On Tuesday, filings by Cboe, the exchange aiming to list spot ether ETFs for prominent firms such as Fidelity, Franklin Templeton, Ark Invest, Invesco, and VanEck, highlighted this stance. They stated, “Neither the trust, nor the sponsor, nor the custodian, nor any other person associated with the trust will, directly or indirectly, engage in actions where any portion of the trust’s ETH becomes subject to the Ethereum proof-of-stake validation or is used to earn additional ETH or generate income or other earnings.”

This approach mirrors the sentiments expressed in similar filings by Nasdaq for the iShares Ethereum Trust and NYSE Arca for Grayscale’s Ethereum Mini Trust and the planned Bitwise Ethereum ETF. The timing of these filings is critical as they precede the SEC’s May 23 deadline to decide on an ether ETF proposal by VanEck, part of a broader series of decisions expected on various ether ETF filings.

The SEC’s upcoming rulings will not only cover these specific ETF proposals but will extend to reviewing registration statements or S-1s filed by the issuers. According to industry experts, this could pave the way for further regulatory clarifications later.

Bloomberg Intelligence analyst James Seyffart noted on a recent X post, “Still a potentially long way from a launch, but these filings prove that all of the rumors and speculation and chatter have been accurate.” This suggests a growing optimism about the approval of spot ether ETFs, especially as discussions between the SEC, stock exchanges, and ETF issuers have intensified.

Previously, several fund groups expressed interest in utilizing staking providers for a portion of their ether assets, a move the SEC seemed unlikely to approve. Ark Invest CEO Cathie Wood highlighted in March that the SEC had issues with the staking language in filings, indicating regulatory hesitance.

The SEC’s ambiguity over whether ETH is a commodity like bitcoin or a security also continues to be a significant factor. Alex Thorn, head of research at Galaxy Digital, proposed on X that the SEC might distinguish “staked ETH” as a security while recognizing ether itself differently, aligning with its broader regulatory strategies.

As the deadline approaches, the amendments to the proposed rule changes and the anticipation of the SEC’s stance illustrate the complex dynamics of integrating cryptocurrencies into mainstream financial products without compromising regulatory standards.

The unfolding scenario around ether ETFs underscores the complexities and strategic adjustments required to align cryptocurrency investments with regulatory expectations. The clear move away from staking in ETF structures reflects a cautious approach to compliance, marking a significant moment in the evolution of cryptocurrency integration into traditional finance.