SEC Raises Alarm Over Crypto ETFs Offering Staking Rewards
By Loukia Gyftopoulou, Isabelle Lee, and Nicola M White
May 31, 2025, 9:07 PM
The launch of U.S. crypto exchange-traded funds (ETFs) designed to provide staking rewards is being met with scrutiny from the Securities and Exchange Commission (SEC), despite the funds receiving initial registration approval. This development has sparked concerns regarding the regulatory classification of these financial products.
Regulatory Scrutiny on Staking ETFs
REX Financial and Osprey Funds are among the issuers aiming to introduce ETFs that track the performance of Ethereum and Solana, offering investors the chance to earn rewards through staking—an investment method that involves pledging tokens to assist in the operation of blockchain networks. However, U.S. regulators have raised concerns that these ETFs may not satisfy the legal criteria necessary to be classified as investment companies under federal securities law.
In a formal communication dispatched late Friday to ETF Opportunities Trust, the SEC indicated that the two proposed ETFs might not meet the investment company definition, a requisite for publicly listing on stock exchanges. The agency expressed apprehension over what it termed “improper filings” in the registration statement and suggested that disclosures related to the funds’ status as investment companies could mislead potential investors.
“We believe we can address the SEC’s concerns regarding the investment company classification. We will delay the funds’ launch until we achieve that clarity,” stated Greg Collett, general counsel at REX Financial.
SEC’s Evolving Stance on Cryptocurrency
Though the SEC did not comment further on the situation beyond its written communication, the scrutiny aligns with broader apprehensions expressed by SEC officials regarding the agency’s changing approach to cryptocurrency regulation.
Commissioner Caroline Crenshaw, the only Democratic member of the SEC and a vocal critic of the agency’s stance toward crypto amidst President Donald Trump’s administration, highlighted the inconsistency in the SEC’s treatment of crypto assets. “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?” Crenshaw wrote in her statement, emphasizing the confusion surrounding regulatory definitions.
Since February, following the establishment of a special advisory group on cryptocurrency, the SEC has clarified that certain crypto assets, including memecoins and stablecoins, do not fall under its jurisdiction as securities. Nevertheless, firms are still eager to pursue registration with the SEC for new investment opportunities.
Previous SEC Actions and Future Outlook
This isn’t the first instance of the SEC raising doubts about investment vehicles in alternative asset classes. Earlier in March, the agency criticized a newly listed ETF by State Street Corp. and Apollo Global Management—marking it as the first fund to invest in private credit—just hours after it was launched.
Despite the current challenges, Bloomberg Intelligence ETF analyst James Seyffart believes that attempts to permit staking in U.S. ETFs will eventually yield successful results. “Even if the SEC doesn’t allow this structure to list, we still believe the more straightforward attempts to allow staking in a U.S. ETF will ultimately be successful. It’s a matter of when, not if,” Seyffart noted. However, he indicated that the SEC’s current response seems to disfavor the manner in which REX attempted to facilitate these listings.
Following its receipt of a so-called effective registration for the two ETFs earlier on Friday, REX expressed an intention to move forward with potential listings by mid-June, contingent upon resolving regulatory concerns. The SEC has stated that if unanswered questions persist, its staff will consider the next appropriate steps to ensure conformity with federal securities laws.
As the debate over crypto regulation evolves, market participants are left to navigate a landscape marked by conflicting statements and shifting guidelines, raising urgent questions about the future of cryptocurrency-based investment products.
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