The U.S. Securities and Exchange Commission (SEC) has placed a hold on new proposals for crypto ETFs associated with Ethereum and Solana due to concerns regarding compliance with existing regulations. The SEC’s scrutiny focuses on two proposed funds from REX Shares and Osprey Funds, which aimed to provide investors access to staking rewards.
The Core Problem: Are These Funds Even Investment Companies?
At the core of the SEC’s concerns is whether these funds can be classified as investment companies under U.S. law. The SEC maintains strict definitions and wants to ensure that the primary function of these funds is to invest in securities.
“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.”
— etf.com (@etfcom) June 2, 2025
The agency worries that the language in the filings might mislead investors if these funds do not meet the legal criteria of investment companies.
Cayman Islands and Creative Structuring
Another issue with these funds is their complex structure, which includes various corporate entities like C-Corporations and offshore subsidiaries in locations such as the Cayman Islands. This complexity raises additional regulatory considerations.
The SEC has indicated that these structures might not comply with Rule 6c-11, which governs ETF trading and listing in the United States, potentially delaying or blocking their launch.
The Staking Factor
Both proposed funds highlight staking rewards as a key feature, allowing crypto holders to lock assets and earn additional tokens. This aspect is crucial for networks such as Ethereum and Solana, which have transitioned to proof-of-stake systems.
While staking hasn’t been banned, the SEC has been cautious in approving related products, emphasizing risks like investor protection and potential misinterpretations of returns. Furthermore, it’s unclear how staking aligns with traditional financial definitions.
What Happens Next?
Though the ETFs technically became effective on May 30, neither has been listed on any exchanges. REX and Osprey have confirmed they will not proceed until regulatory concerns are addressed. The SEC may take further action if these issues aren’t resolved.
For the time being, both companies are in discussions with regulators to navigate this situation.
A Bigger Test for Crypto ETFs
The SEC’s actions in this instance reflect the ongoing challenges of integrating crypto into the ETF landscape, particularly with innovative features like staking. The approval process for more intricate ETFs remains challenging, and the outcome here may influence future applications related to Ethereum, Solana, and staking-linked ETFs, which could present new opportunities for institutional investment in proof-of-stake networks.
