A group of US Senators led by Cynthia Ramis urged the Securities and Exchange Commission (SEC) on February 20 to clarify its position on protocol staking in Crypto Exchange-Traded products (ETP). letter.
Lawmakers are seeking responses regarding the exclusion of staking from ETP issuers' S-1 filings. It claims this will affect the competitiveness of US asset managers and prevent investors from accessing core blockchain functions.
The SEC allows for the registration of multiple digital assets ETPs, but consistently requires the issuer to remove protocol staking from filing.
As a result, the senator requested that the SEC provide explicit inference of its decision to exclude staking from digital asset ETPs.
They say the rationale behind the restrictions, the risks identified by the SEC regarding staking, and whether staking can be provided within registered security equipment if the product is considered an investment agreement. We raised three important questions about this.
Additionally, the senator argued that increased transparency would help market participants understand the SEC's regulatory position and inform potential legislative measures where necessary.
The senators have set aside April. The deadline for the SEC to respond to the letter.
Competitive drawbacks
The senator argues that this stance limits the investment potential of these products in the US and places it at a disadvantage compared to similar offerings in Canada, Europe and the UK. The latter recently granted digital asset ETPs with staking, supported by bipartisan support from conservatives and Labour leaders.
Staking is essential for Proof-of-Stake (POS) networks such as Ethereum (ETH) and Solana (SoL). This allows validators to protect their blockchain networks by locking native assets in exchange for transaction fees and newly created tokens.
The letter authors argue that apart from staking from ETPS, this will prevent investors from realizing these benefits, reduce potential returns and weaken network security.
Staking discussions are intensifying
On February 5th, the SEC's Crypto Task Force met with Jito Labs CEO Lucas Bruder, Kyle Samani of Multicoin Capital, and legal experts from both companies. The discussion focused on integrating staking into the ETP structure, addressing regulatory concerns.
The SEC cites multiple reasons for hesitation, including redemption timelines that contradict the T+1 settlement cycle, tax impacts on compensation staking, and classification of classification as a service as a security offer .
These factors led the SEC to require issuers to strip staking capabilities from early Ethereum ETP applications.
During the meeting, industry representatives presented two models designed to alleviate SEC concerns while enabling staking within the ETP.
The first proposes piling a portion of the ETP held assets through a third-party validator, while the second model allows the ETP to hold a liquid staking token representing the dyed assets . For example, Solana-based ETPs include Jitosol, a liquid staking derivative of Sol.
It is mentioned in this article
