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Crypto Reporter
Shalini Nagarajan
Crypto Reporter
Shalini Nagarajan
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The Cboe BZX Exchange on Wednesday proposed a rule change to the US SEC to allow staking within the 21Shares Core Ethereum (ETH) ETF.
The company filed a Form 19b-4, potentially introducing the first Ethereum ETF in the US that features staking. The ETF’s trust will lock up its Ethereum to secure the blockchain and earn staking rewards.
This move is significant because, until now, US ETH ETFs have shied away from staking due to regulatory concerns over securities classification and the complexities of managing staking within regulated frameworks.
Moreover, by integrating staking, the ETF has the potential to offer investors additional yield, effectively narrowing the gap between the benefits of direct ETH ownership and those provided by an ETF structure.
Staking Feature Could Spark a New Trend in Crypto ETF Offerings
The filing seeks to reverse earlier regulations governing the ETF, specifically to permit staking of the Ethereum held by the trust, after discussions with the ETF’s sponsor.
This move comes after the SEC had previously greenlit Ethereum ETFs without staking features. It had approved the 21Shares Core Ethereum ETF, alongside Ethereum ETFs from major asset managers like BlackRock and Fidelity last year.
If the staking feature gains approval, it could open the door for other cryptocurrency ETFs to adopt staking as well, thereby increasing their appeal by adding an attractive yield component.
In staking, participants lock up their cryptocurrency to secure the Ethereum blockchain, earning rewards as the network shifts to proof-of-stake. However, the SEC remains cautious because staking might be classified as a security under the Howey Test, which defines an investment as a security if it involves investing in a common enterprise with an expectation of profits generated by the efforts of others.
SEC Decision Expected Late October
Bloomberg ETF analyst James Seyffart noted that the 21Shares Core Ethereum ETF became the first to submit a filing requesting staking permission from the SEC. Further, he estimated that the SEC’s final decision on the request will likely come in late October, around the 30th.
The amendment indicates that the sponsor will periodically stake a portion of the trust’s ether through designated, reliable staking providers, which could include the custodian or its affiliate.
However, the sponsor will intentionally exclude any providers that are its own affiliates. As a result, the trust will earn ether token rewards from staking, potentially classifying as income for the trust.
