A group of US senators, led by Cynthia Lummis, recently sent a letter to the Securities and Exchange Commission (SEC) urging them to clarify their position on protocol staking in crypto exchange-traded products (ETPs). The senators are concerned about the exclusion of staking from ETP issuers’ S-1 filings, which they believe hinders the competitiveness of U.S. asset managers and restricts investor access to core blockchain functions. The SEC has allowed the registration of digital asset ETPs but has consistently required issuers to remove protocol staking from their filings. The senators are asking for explicit reasoning behind this decision and have posed key questions regarding the restriction, potential risks, and the possibility of allowing staking within a registered security instrument.
The senators argue that the exclusion of staking from ETPs puts U.S. products at a disadvantage compared to similar offerings in other countries such as Canada, Europe, and the UK. These countries have recently permitted digital asset ETPs that include staking, with bipartisan support. Staking is essential for proof-of-stake (PoS) networks like Ethereum and Solana, as it helps secure blockchain networks by locking up native assets in exchange for transaction fees and new tokens. By not allowing staking in ETPs, investors miss out on potential benefits, reducing their returns and weakening network security.
The SEC’s Crypto Task Force recently met with industry representatives to discuss integrating staking into ETP structures while addressing regulatory concerns. The SEC has cited concerns such as redemption timelines conflicting with settlement cycles, tax implications of staking rewards, and the classification of staking-as-a-service as a securities offering. Industry representatives presented two models during the meeting to address these concerns, including staking through third-party validators and holding liquid staking tokens representing staked assets. For example, a Solana-based ETP could include JitoSOL, a liquid staking derivative of SOL to enable staking within the ETP without violating SEC regulations.
The senators have set a deadline of April 1 for the SEC to respond to their letter, requesting clarity on the reasoning behind excluding staking from digital asset ETPs. They believe increased transparency from the SEC will help market participants understand the regulatory position and potentially inform legislative action if necessary. Overall, the senators are advocating for the inclusion of staking in ETPs to enhance investment potential, competitiveness, and investor access to core blockchain functions in the US.
