The U.S. Securities and Exchange Commission (SEC) has raised significant concerns about a new proposal from REX Shares and Osprey Funds to launch exchange-traded funds (ETFs) that would invest in Ethereum and Solana, with a twist: these funds would generate extra yield by staking at least half of their crypto holdings . While the idea of earning staking rewards through an ETF is appealing to many investors, the SEC is not convinced the products meet the legal requirements for an ETF under current regulations.
What’s at Stake?
REX Shares and Osprey Funds recently filed to create C-corporation ETFs focused on Ethereum and Solana. The funds would allocate at least 80% of their assets to their respective cryptocurrencies, and at least 50% of those assets would be staked to earn additional rewards . This approach is designed to let investors benefit from both price appreciation and staking yields, all within a familiar ETF structure.
However, the SEC flagged the proposal almost immediately after the registration statement went live. In a letter, the agency said there are “unresolved questions” about whether these funds, as structured, actually qualify as investment companies under the Investment Company Act . The SEC also asked the issuers to delay the effectiveness of their registration and to make their recent correspondence with the agency public for transparency.
Regulatory Hurdles and Industry Reactions
The SEC’s skepticism centers on whether staking activities and the proposed fund structure fit within the legal definition of an ETF. While spot Ethereum ETFs have been trading since July 2024, there is still no approved spot Solana ETF in the U.S., making the path for a staking Solana ETF even more complicated . The SEC’s concerns could lead to enforcement actions or require the issuers to refile their applications.
Despite these challenges, REX Shares and Osprey Funds remain optimistic. Greg Collett, general counsel at REX Financial, told Bloomberg that they believe they can address the SEC’s concerns and will not launch the funds until they do . Industry analysts, including those at Bloomberg, have noted that while the legal strategy is creative, there may be more efficient ways to bring staking exposure to market in the future.
What’s Next for Crypto ETFs?
The outcome of this proposal could set an important precedent for future crypto ETFs that aim to include staking or other yield-generating strategies. For now, investors will have to wait as REX Shares and Osprey Funds work to satisfy the SEC’s requirements and as the agency continues to evaluate the evolving landscape of crypto investment products.
