Regulatory Tensions Flare as SEC Pushes Back on Crypto Staking ETFs
The SEC challenges two firms' crypto staking ETF proposals, citing concerns over their legal compliance.
In the latest standoff between U.S. regulators and the cryptocurrency sector, the Securities and Exchange Commission (SEC) has raised red flags over proposed exchange-traded funds (ETFs) from REX Financial and Osprey Funds that would offer staking exposure. According to Bloomberg, these funds are intended to let investors earn rewards by pledging crypto tokens to help maintain blockchain networks—a structure that blurs the lines of conventional fund classification.
While REX and Osprey had reportedly secured preliminary approval to register their products, the SEC has since questioned whether these instruments meet the legal definition of an investment company under U.S. securities laws. In a letter sent Friday to the ETF Opportunities Trust—the umbrella entity for various ETF issuers including REX—the SEC warned that the registration statements could be misleading and may not comply with legal requirements.
"We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that," said Greg Collett, general counsel at REX, signaling a pause rather than a retreat.
At the heart of the dispute is whether staking activities, which involve active participation in blockchain operations, align with the passive investment model traditionally associated with ETFs. This is not the first time the SEC has shown reluctance to endorse novel crypto financial products. Although the commission approved several spot Bitcoin ETFs last year, then-Chair Gary Gensler emphasized that such approval was not an endorsement of bitcoin itself.
"We did not approve or endorse bitcoin," Gensler stated. "Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto."
Despite recent signs of a more lenient regulatory approach under the Trump administration—including the dropping of major lawsuits against firms like Binance—the SEC’s unease over staking-focused ETFs suggests persistent caution within the agency.
"Even if the SEC doesn’t allow this structure to list, we still believe the more straightforward attempts to allow staking in a U.S. ETF will be successful," said James Seyffart, ETF analyst at Bloomberg Intelligence. "It’s a matter of when, not if."
As the crypto sector seeks more mainstream investment vehicles, this latest development underscores the intricate dance between innovation and regulation. For now, it remains clear that while staking ETFs may represent a promising frontier for crypto finance, they also inhabit a legal gray zone that the SEC is far from ready to exit.
