SEC Raises Concerns Over Staked Solana Ether ETFs Proposed by REX Osprey

The United States Securities and Exchange Commission (SEC) has raised concerns regarding the qualification of staked Solana (SOL) and Ether (ETH) exchange-traded funds (ETFs) proposed by REX Financial and Osprey Funds. The SEC's primary issue lies with the unique corporate structure of these funds, which are structured as C-corporations, a structure rarely seen in ETFs. This structure conflicts with the 6C-11 rule, also known as "the ETF rule," which outlines the appropriate corporate structures for ETFs. The SEC expressed these concerns in a May 30 letter, stating that the funds' structure may not meet the definition of an 'investment company' under the Investment Company Act, potentially misleading investors.

The SEC's letter highlights the regulatory challenges faced by innovative financial products in the cryptocurrency space. The funds, if approved, would be the first in the U.S. to have staking as a central feature, aiming to generate token rewards for investors. However, the SEC's scrutiny suggests that the regulatory body may not view these funds as traditional ETFs, potentially complicating their approval process. The funds plan to stake at least 50% of their assets, aligning with the growing interest in crypto income strategies. Anchorage Digital has been appointed to provide custody and staking services for these products, with its CEO, Nathan McCauley, confirming that Anchorage is the only federally chartered bank permitted to offer staking services.

The legal structure of these funds has drawn attention from ETF analysts, who note that the funds are classified under the 1940 Act, separating them from other spot crypto ETFs. This classification means that staking rewards can be considered dividends, and changes in tax amounts will directly influence the net asset value of each fund. The Ethereum fund is proposed to have a 1.28% yearly fee, while the Solana fund will charge a fee of about 1.4%.

Despite the SEC's concerns, analysts remain optimistic that the ETF issuers and the SEC will reach an agreement. "REX lawyers say they can work it out," an ETF analyst wrote. "Issuers are pushing the envelope hard in an effort to get first to market," the analyst continued. Crypto investors and traders continue closely monitoring the approval of altcoin and staking ETFs in the United States, as the listing of these investment vehicles is expected to bring fresh liquidity from the traditional financial markets into crypto.

The SEC's concerns highlight the regulatory challenges faced by innovative financial products in the cryptocurrency space. While the SEC has not yet approved a spot Solana ETF, the listing of SOL futures on the CME has raised expectations for future approval. The filings by REX and Osprey could mark an early shift in how staking becomes part of mainstream investment funds, but the SEC's scrutiny suggests that the path to approval may not be straightforward. The SEC continues to delay the decision on staked and altcoin ETFs despite issuing recent guidance that crypto staking does not violate securities laws and does not fall under the purview of securities transactions.