Grayscale's Ethereum ETFs Seek SEC Nod for Staking Rewards

The Securities and Exchange Commission (SEC) has acknowledged a filing from NYSE Arca that would allow Grayscale’s Ethereum exchange-traded funds to earn staking rewards. The proposal, submitted on February 14 and published by the SEC on February 25, 2025, seeks to enable the Grayscale Ethereum Trust ETF and Grayscale Ethereum Mini Trust ETF to participate in Ethereum’s proof-of-stake validation system.

Under the proposed rule change, Grayscale would stake a portion of the ETFs’ Ethereum holdings through trusted staking providers. These providers could include the current custodian or its affiliates but would not include any Grayscale affiliates. The proposal specifies that the staking process would be managed solely by Grayscale as the fund’s sponsor, without pooling Ethereum with other entities.

A key aspect of the proposal is that staked Ethereum would remain under custodial control, addressing security concerns that have previously complicated regulatory approval for such activities. “Staking by the sponsor will not result in the Ethereum held by the Trust moving out of the custody of the Custodian,” the filing explains. “This process does not involve the staked Ethereum leaving the wallet at which it is held.”

The ETFs would earn rewards in the form of additional ETH through the staking process. These additional funds would be considered as income for the fund. Coinbase Custody will continue to secure the fund’s Ethereum holdings, maintaining the current security framework in place.

Ethereum staking involves users locking up their ETH to become co-validators, helping to secure the network while earning ETH as a reward. This feature has become an integral part of Ethereum since its transition to proof-of-stake in 2022 with an event known as The Merge.

If approved, the change would help Grayscale’s ETFs track returns associated with holding Ethereum more effectively. The SEC will have 45 days to approve, disapprove, or extend its review period, with a decision expected by May 26, 2025. The review timeline could extend up to 90 days based on regulatory considerations.

Grayscale has been exploring the addition of staking to its Ethereum ETF for some time. In March 2024, the company proposed a similar staking structure