Crypto task force eyes ETF staking; what could it mean for crypto ETFs?

In a meeting with Jito Labs and Multicoin Capital, the Securities & Exchange Commission (SEC) examined various methods for tackling regulatory issues related to digital assets, including the approval of staking within crypto exchange-traded funds (ETFs).

The new SEC administration's positive crypto reforms have prompted Ethereum ETF issuers Grayscale and 21Shares to file with the agency to approve staking within their products.

Ethereum ETF staking race intensifies as crypto task force discusses its potential

The SEC crypto task force met with officials from Jito Labs and Multicoin Capital to discuss matters regarding crypto regulations.

The parties majorly interacted on the subject of staking within ETFs, according to a memorandum released on Friday.

The document stated that the meeting occurred on February 5 and involved two key discussions, including the "ability to include staking as a feature in exchange-traded products (ETPs)" and potential models for staking in certain crypto asset ETPs.

The task force is reportedly considering two possible approaches, which includes permitting issuers to stake a portion of ETF assets under management through service providers operating validators.

The other option involves issuing a liquid staking token for each staked native asset, effectively enabling a form of redemption.

According to the document, the SEC has historically been cautious about approving staking within crypto ETFs for three primary reasons.

The first is that mandatory unbonding periods could potentially delay investor redemptions.

The second reason is that staking may introduce complex tax implications for issuers. 

Lastly, questions remain about whether staking-as-a-service constitutes a securities transaction.

This explains the delay that issuers experienced during the Ethereum ETF approval process, which led them to update their filings to exclude staking.

However, with the new SEC administration, issuers are gaining confidence in refiling to include staking in their ETH ETFs.

On Friday, NYSE Arca filed a proposal with the SEC to allow staking within the Grayscale Ethereum and mini Ethereum ETFs. Prior to its filing, the Cboe BZX made a similar request on Wednesday, seeking permission for ETH staking in the 21Shares Core Ethereum ETF.

Should these applications receive approval, Ethereum ETFs could unlock additional yield from their staked assets, which could prove attractive to investors.