A potentially watershed effort to launch US crypto exchange-traded funds that offer staking rewards is throwing up regulatory doubts, even after the funds said they received initial SEC registration approval.
Issuers REX Financial and Osprey Funds are targeting to launch ETFs tracking Ethereum and Solana that offer staking exposure, which allows investors to earn rewards by pledging tokens to help operate the blockchain.
US regulators are now raising concern the vehicles may not legally qualify as ETFs at all under federal securities law.
In a letter late Friday sent to ETF Opportunities Trust — the legal entity that issues various ETFs including those managed by firms like REX — Securities and Exchange Commission staff said the two ETFs may fail to meet the legal definition of an investment company, a designation needed for the funds to list in the stock market.
The SEC said it was concerned the funds “improperly filed their registration statement” and that “disclosures in the registration statement regarding the funds’ status as investment companies may be potentially misleading.”
“We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that,” said Greg Collett, general counsel at REX Financial.
The SEC declined to comment beyond the letter.
SEC Commissioner Caroline Crenshaw, the commission’s lone Democrat and frequent critic of its new view on crypto in President Donald Trump’s administration, said the situation was emblematic of the agency’s recent piecemeal approach to crypto regulation.
During his reelection campaign, Trump touted his own digital collectibles, gathered campaign donations from crypto fans and said he would make the US the “crypto capital of the planet.”
Since February, following the launch of a special advisory group on cryptocurrency, SEC staff have issued statements saying crypto assets such as memecoins and stablecoins aren’t securities, meaning they aren’t under the SEC’s jurisdiction.
Yet firms see opportunities to register with the SEC to launch new products, Crenshaw said in a statement Saturday.
“How is it that these crypto assets are supposedly not securities when it comes to registration requirements, but conveniently are securities when a registrant sees an opportunity to sell a new product?,” she said. “If you’re confused, join the club.”
Read more: What Is Crypto Staking? Why Is the SEC Cracking Down?: QuickTake
It’s the second time in recent months that the SEC has publicly expressed doubt on a listed fund investing in alternative asset classes.
In March, it rebuked an ETF by State Street Corp. and Apollo Global Management — the world’s first to invest in private credit — hours after the fund listed.
“Even if the SEC doesn’t allow this structure to list, we still believe the more straightforward attempts to allow staking in a US ETF will ultimately be successful,” Bloomberg Intelligence ETF analyst James Seyffart said. “It’s a matter of when, not if. But the SEC doesn’t seem to be a fan of the way Rex tried to push these listings through.”
REX said it received a so-called effective registration for the two ETFs earlier Friday, meaning they could be listed anytime. REX founder Greg King said at the time the company was planning the launch by mid-June for both.
“To the extent that these concerns remain unresolved, the Commission staff will consider the appropriate next steps to ensure compliance with the federal securities laws,” the SEC said late Friday.
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