How does one navigate the labyrinthine world of crypto ETF approvals when the SEC seems determined to question every innovative structure that dares cross its regulatory desk? REX Financial and Osprey Funds are discovering this firsthand as their proposed staking ETFs face intense scrutiny from regulators who appear genuinely perplexed by the concept of earning rewards for supporting blockchain operations.
The SEC’s concerns center on whether these funds—cleverly structured as C-corporations to potentially sidestep the traditional 19b-4 rule change process—actually qualify as investment companies under federal law.
This semantic dance matters enormously, as investment company designation triggers a cascade of regulatory requirements that could fundamentally alter these products’ viability.
The regulator seems particularly vexed by staking rewards, treating them with the suspicious air of someone encountering cryptocurrency for the first time (which, given regulatory timelines, might not be far from the truth). However, REX General Counsel Greg Collett remains confident his firm can satisfy the SEC’s concerns regarding the investment company classification issue.
Yet recent SEC guidance offers a fascinating counterpoint to this skepticism.
The commission has acknowledged that protocol staking constitutes legitimate blockchain operations rather than investment contracts—a recognition that industry observers herald as transformative for regulatory clarity.
This represents a marked departure from the enforcement-heavy approach that previously characterized the SEC’s crypto strategy, suggesting even regulators can evolve when market realities become impossible to ignore.
The broader implications extend beyond these specific ETF proposals.
Industry watchers anticipate approvals for spot Solana and Ethereum ETFs throughout 2025, with staking variants becoming increasingly plausible by year’s end.
This optimism stems partly from growing recognition that staking represents core blockchain functionality, not some exotic investment scheme designed to circumvent securities laws. The process fundamentally involves users locking their tokens to support network validation, with staking pools offering institutional investors a practical entry point into blockchain participation.
Meanwhile, Grayscale’s XRP ETF and Bitwise’s Ether staking proposals join the queue of delayed applications, creating a regulatory bottleneck that highlights the SEC’s ongoing struggle to balance innovation with investor protection.
The commission’s Crypto Task Force continues developing thorough regulations, though their timeline remains as predictable as cryptocurrency prices themselves.
This regulatory evolution reflects broader global trends toward consistent digital asset frameworks, positioning the United States to either lead or follow in defining how traditional investment vehicles adapt to blockchain technology’s unique characteristics.
