Thomas Daniels
The U.S. Securities and Exchange Commission (SEC) has expressed reservations regarding the proposed staked Solana (SOL) and Ethereum (ETH) exchange-traded funds (ETFs) from REX Financial and Osprey Funds, questioning whether the investment vehicles qualify as ETFs under current regulations.
Central to the SEC’s concerns is the use of a C-corporation structure, an uncommon choice for ETFs. This structure potentially conflicts with Rule 6c-11 of the Investment Company Act of 1940, which governs the permissible formats for exchange-traded funds. In a letter dated May 30, the SEC stated that its staff “continues to have unresolved questions about whether the Funds, if structured and operated as proposed, would be able to meet the definition of ‘investment company.’” The Commission further warned that disclosures about the funds’ status could be “potentially misleading.”
Despite the regulatory pushback, optimism remains. Analysts suggest that the ETF issuers are determined to resolve the matter and proceed. Bloomberg ETF analyst Eric Balchunas reported that REX’s legal team believes a resolution is achievable, underlining the urgency among issuers to gain first-mover advantage in this emerging ETF category.
The proposed funds would offer investors exposure to native staking rewards via wholly owned Cayman Islands subsidiaries that participate in on-chain staking activities. This innovative design aims to bridge traditional finance and decentralized finance by integrating staking yields into regulated investment products.
Although the SEC has recently issued guidance indicating that crypto staking does not inherently constitute a securities transaction, decisions on staking-based ETFs remain delayed. Analysts such as James Seyffart note that such delays are standard, with final deadlines for decisions extending into October.
As market participants await regulatory clarity, the outcome of the SEC’s deliberations could establish critical precedents for future cryptocurrency-based ETFs, particularly those incorporating staking mechanisms.
