REX-Osprey’s Cayman-Structured ETF Sidesteps SEC Staking Restrictions

REX-Osprey™ has launched the ESK ETF, the first U.S.-listed 1940 Act fund to provide exposure to Ethereum (ETH) and staking rewards. The REX-Osprey™ ETH + Staking ETF (ticker: ESK) offers investors access to spot Ethereum via an ETF structure while distributing monthly staking yields. The fund holds a mix of directly staked ETH and exchange-traded products that stake ETH, with all rewards passed directly to investors. Greg King, CEO of REX Financial, emphasized that ESK expands the firm’s crypto-staking ETF suite, following the successful debut of the SSK Solana + Staking ETF in July 2025. SSK, the first U.S. ETF to combine spot Solana exposure with staking rewards, has amassed over $300 million in assets under management and converted to a Regulated Investment Company (RIC) structure to enhance tax efficiency.

The ESK ETF’s structure avoids traditional 19b-4 SEC approval by using a C-corporation framework and Cayman Islands subsidiaries. This legal innovation allows the fund to sidestep restrictions preventing grantor trust ETFs from engaging in staking. While tax-efficient for investors, the C-corp structure introduces corporate tax obligations, creating a trade-off between regulatory compliance and efficiency. The fund’s exposure is concentrated in the Ethereum ecosystem, exposing investors to risks tied to network volatility, smart contract vulnerabilities, and validator governance.

Ethereum’s proof-of-stake mechanism, which ESK leverages, carries inherent risks. Staking requires locking ETH for extended periods, limiting liquidity during market fluctuations. Additionally, validator control exceeding 50% could enable network attacks or payment halts, though such scenarios remain theoretical. The fund’s non-diversified approach further amplifies volatility, as it allocates a significant portion of assets to a narrow set of issuers.

Regulatory and operational risks loom large. The crypto sector’s evolving legal landscape, including potential enforcement actions, could disrupt fund operations. Custody risks are also critical: the fund’s digital assets are secured via private keys controlled by custodians, and a breach could result in permanent asset loss. Market risks, including extreme price swings and liquidity challenges, underscore the sector’s speculative nature.

The launch of ESK reflects growing institutional interest in crypto yield strategies. Bloomberg ETF analyst James Seyffart noted the Cayman route as a “clever legal workaround” to accelerate market entry. With both ESK and SSK set to list on Nasdaq, the REX-Osprey model could pave the way for future staking ETFs, particularly as IRS guidance on staking taxation evolves.

Source: [1] REX-Osprey Launches First Ethereum Staking ETF in the U.S. (https://www.rexshares.com/rex-osprey-launches-first-ethereum-staking-etf-in-the-u-s/)

[2] REX-Osprey™ Launches First Ethereum Staking ETF in the US (https://www.tmcnet.com/usubmit/2025/09/25/10260509.htm)

[3] REX Shares' Ethereum Spot + Staking ETF "ESK" (https://www.odaily.news/en/newsflash/449960)

[4] REX Shares Files Innovative ETFs for ETH, SOL Staking (https://coinedition.com/rex-shares-files-innovative-etfs-for-eth-sol-staking-with-immediate-effectiveness/)