The U.S. Securities and Exchange Commission is once again putting the brakes on new crypto ETF proposals. This time, it’s calling out two funds tied to Ethereum and Solana ETFs that were set to offer investors access to staking rewards. The products come from REX Shares and Osprey Funds, and while the ideas sound innovative on paper, the SEC isn’t convinced they’re playing by the rules.
The Core Problem: Are These Funds Even Investment Companies?
At the heart of the issue is whether these funds meet the legal definition of an investment company under U.S. law. The SEC has a strict view on what qualifies. It wants to know if these funds actually invest in securities as their main activity. If not, they can’t use the usual registration process that most mutual funds or ETFs follow.
The SEC has expressed concerns that Ethereum and Solana ETFs offering staking exposure may not qualify as ETFs under the Investment Company Act, highlighting regulatory uncertainty around crypto staking and the classification of crypto assets as securities. Read more:… pic.twitter.com/WxlRLLYMA9
— etf.com (@etfcom) June 2, 2025
The regulator is also worried that the language used in the filings might give investors the wrong idea. If the funds don’t technically meet the criteria to be considered investment companies, the SEC doesn’t want them acting like they do.
Cayman Islands and Creative Structuring
Another thing raising eyebrows is how these funds are structured. Instead of following a straightforward model, they use layers of corporate entities, including C-corporations and offshore subsidiaries in places like the Cayman Islands. That’s not unheard of in the finance world, but it does complicate things.
The SEC says these setups might not comply with Rule 6c-11, which governs how ETFs can be listed and traded in the U.S. If they don’t check all the right boxes, the agency can delay or block their launch.
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The Staking Factor
A big selling point of these funds is that they promise exposure to staking rewards. That’s when crypto holders lock up their assets to help run blockchain networks and, in return, earn extra tokens. Staking has become a key part of how networks like Ethereum and Solana function since both now use proof-of-stake models.
The SEC hasn’t banned staking, but it’s been slow to approve products that rely on it. The agency has warned about the risks, like the lack of clear protections for investors and the possibility of returns being misunderstood. It’s also unclear how staking fits into the legal definitions used in traditional finance.
What Happens Next?
The ETFs technically became effective on May 30, but that doesn’t mean they’re ready to launch. So far, they haven’t been listed on any exchanges, and both REX and Osprey have said they won’t move forward until everything is cleared up. The SEC has hinted that it may take further steps if the concerns aren’t resolved.
For now, both companies are trying to work with regulators to sort it out. Whether they succeed could shape the future for other staking-based crypto funds.
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A Bigger Test for Crypto ETFs
This is more than just a one-off dispute. The SEC’s reaction here shows how tricky it still is to bring crypto into the ETF world, especially when you start adding newer features like staking. While spot Bitcoin ETFs made it through the regulatory gauntlet earlier this year, anything more complex still faces an uphill climb.
How the SEC handles this case will likely set the tone for Ethereum, Solana, and any other staking-linked ETFs that come next. The crypto industry is watching closely. If approved, Ethereum and Solana staking ETFs could offer a new gateway for institutions to tap into proof-of-stake networks legally.
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Key Takeaways
- The SEC is delaying Ethereum and Solana staking ETF plans from REX and Osprey due to legal and structural concerns.
- At issue is whether these funds meet the definition of a U.S. investment company under existing financial laws.
- The SEC flagged concerns over complex fund structures involving offshore entities like Cayman-based subsidiaries.
- Staking rewards are a core feature of these ETFs, but the SEC remains cautious about approving such mechanisms for public products.
- These delays highlight how crypto ETFs with newer features still face steep regulatory hurdles in the U.S.
The post SEC Puts Ethereum and Solana ETF Plans on Hold Over Compliance Worries appeared first on 99Bitcoins.
