Solana ETFs Intensify Competition as Staking Rewards and Fee Models Diverge

Solana's latest price was $193.61, down 12.259% in the last 24 hours. The cryptocurrency has remained a focal point of institutional and regulatory attention, with developments indicating a potential shift in its role within traditional financial systems. One of the most anticipated developments is the proposed Solana ETF by Canary Capital, which recently submitted its sixth amendment to the U.S. Securities and Exchange Commission (SEC). This ETF is designed with an expense ratio of 0.50%, positioning it competitively within the market. What sets this offering apart is that it will retain all staking rewards for investors, allowing shareholders to benefit directly from the network's staking activity without any deductions from the fund itself.

The ETF plans to stake the majority of its Solana (SOL) holdings through Marinade Finance, a prominent staking provider in the Solana ecosystem. To maintain operational efficiency, a portion of the asset reserved for liquidity and expenses will not be staked, ensuring the fund can manage redemption requests without interfering with the staking process. This dual approach aims to provide both price exposure and reward generation, aligning the interests of the fund and its investors. The structure reflects a growing sophistication in crypto asset management, where the ability to earn passive income through staking is becoming a key differentiator in investment products.

Analysts have noted that the fee model of Canary’s Solana ETF introduces a new dynamic in the ETF landscape. While other providers offer lower expense ratios, such as Bitwise’s 0.20%, they often retain a portion of staking rewards, which can translate into additional hidden fees for investors. Canary’s approach, by contrast, ensures that all staking rewards go directly to investors, offering a model of greater transparency and value retention. This distinction complicates direct comparisons between funds, as the cost of ownership is not just a function of the expense ratio but also of how staking rewards are distributed.

Tracking difference remains a critical performance metric for Solana ETFs. It represents the deviation between the ETF’s net asset value (NAV) and the actual price of Solana. This metric encompasses both the fund’s expense ratio and the impact of staking rewards, offering a more comprehensive view of the fund’s cost structure. During periods of high trading volume, small deviations in NAV can emerge, influenced by factors such as supply and demand dynamics and fluctuations in staking yields. The ETF’s NAV will be calculated using CoinDesk Solana CCIX 60-minute averages, ensuring a transparent and reliable benchmark for performance tracking.

Canary’s Solana ETF is registered as a continuous offering under the Securities Act of 1933, meaning it is not subject to the same regulatory constraints as funds under the Investment Company Act of 1940. This classification removes certain investor protections typically associated with mutual funds or futures-linked ETFs. However, the fund aims to deliver exposure to Solana’s price movements while generating staking rewards, making it an attractive option for investors seeking both liquidity and yield. Once approved, the fund is expected to list on the Cboe BZX Exchange under the ticker symbol SOLC, a structure that mirrors traditional ETFs while introducing a new layer of complexity due to the unique nature of staking in blockchain ecosystems.

Authorized participants will be able to exchange baskets of 10,000 shares for either SOL or cash, facilitating efficient creation and redemption processes. This mechanism ensures the fund remains liquid and responsive to market demand. Canary’s strategy could attract a broad range of investors, especially those interested in both the price movement of Solana and the additional income generated through staking. By combining exposure to a rapidly growing blockchain with a model that preserves staking rewards, the fund offers a compelling alternative to existing products and reflects the increasing innovation within the crypto asset management industry.

As the Solana ETF market continues to evolve, competition is intensifying. Bitwise, for instance, has also submitted an amendment to its spot Solana ETF, introducing a staking feature and a new fee model. The firm has proposed a 0.20% annual management fee, the lowest among competing crypto ETFs, and plans to waive all fees for the first three months or until the fund reaches $1 billion in assets under management, whichever comes first. This approach, described as a “veteran Terrordome strategy” by industry analysts, highlights the aggressive tactics being employed to capture market share in a rapidly expanding sector.

The regulatory landscape for Solana ETFs is also shifting. The SEC has received nearly 16 applications this month, and the new generic listing rules are streamlining the approval process by removing token-specific requirements. This change could accelerate the entry of additional products into the market. With the deadline for Solana ETF approvals set for October 10, the chances of approval are considered high. This optimism is further supported by the performance of the Grayscale Solana Trust (GSOL), whose premium to net asset value has dropped from 750% at the end of last year to zero. This trend mirrors the behavior of Grayscale’s Bitcoin and Ethereum trusts before their conversions into spot ETFs, indicating a growing normalization of crypto assets within traditional financial frameworks.

Analysts believe that the increasing institutional demand for Solana is driven by its technical advantages, including high speed, scalability, and a growing ecosystem. These factors, combined with the potential for regulatory clarity and broader market acceptance, make Solana an attractive option for both institutional and retail investors. The approval of spot Solana ETFs could further enhance the asset’s appeal by providing a regulated and accessible investment vehicle that aligns with the needs of a wider audience. As the market continues to evolve, the integration of Solana into traditional portfolios is being viewed as a significant milestone in the ongoing journey of crypto adoption.