CBOE BZX Exchange filed a request with the U.S. Securities and Exchange Commission (SEC) to enable staking of the 21-share core Ethereum Exchange Trade Fund (ETF), according to a filing on February 12th.
If approved, the ETF will bet on holdings of Ethereum (ETH) to allow investors to earn staking rewards.
Regulation hurdles
Staking is essential to the Ethereum Proof Demonstration (POS) consensus mechanism where participants lock ETH to validate network transactions and earn rewards.
In 2024, the SEC approved several Ethereum ETFs, but explicitly banned staking. Regulators cite concerns that staking could violate federal securities laws, consistent with the broader attitude that staking services are similar to offering unregistered securities.
This position led to enforcement action against Coinbase and Kraken, accused of running illegal staking programs.
To alleviate regulatory concerns, CBOE proposes using “point and click staking.” Unlike traditional staking models in which ETH is transferred to third parties, this approach allows ETFs to wager their holdings without moving assets out of their custody wallets.
This setup reduces the risk of theft, but does not eliminate potential thrashing penalties. This is the process in which ETH stained for violations of network rules is partially or completely confiscated.
The company also explained that excluding staking from a 21Shares Core Ethereum ETF is similar to a stock exchange product (ETP) that reduces dividends from underlying assets.
It claims to enhance investors' returns by staking ETH, track ETF's Ethereum performance and improve its ability to optimize fund creation and redemption processes.
Will it be approved?
This filing is marked only when a US registered Crypto ETF requests staking privileges. If approved, it can set precedents for other funds that are trying to integrate staking rewards into their products.
Optimism has grown following recent leadership changes in the SEC. Some consider this to be more open to crypto-related financial products. Commissioner Hester Peirce, a known advocate for Crypto Innovation, suggests that previously staking the Ethereum ETF remains a topic that can be spared for discussion.
Meanwhile, Bloomberg ETF analyst James Seyfert predicts that the final approval or denial deadline will decrease around October if the SEC grants the application.
If successful, the move could reconstruct the landscape of Ethereum-based investment products and create new opportunities for investors seeking exposure to dietary rewards within a regulated ETF structure.
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