SEC Greenlights Protocol Staking, REX Shares Pushes for ETH and SOL Staking ETFs

Landmark SEC Guidance Removes Staking Uncertainty While REX Unveils Bold ETF Strategy

A pivotal clarification from the U.S. Securities and Exchange Commission on May 29, 2025, may redefine how staking is regulated in the United States. In a formal statement from the Division of Corporation Finance, the SEC declared that various forms of protocol staking—solo staking, self-custodial staking through third-party validators, and custodial services staking assets on behalf of clients—do not qualify as securities transactions under federal law. This assertion draws a clear distinction between network-generated staking rewards and returns derived from the managerial efforts of others, which typically trigger securities classification under the Howey Test.

The statement outlined that these staking activities fall outside the scope of both the Securities Act of 1933 and the Securities Exchange Act of 1934. It further clarified that ancillary staking services, including slashing insurance and early withdrawal functionalities, are also exempt from being categorized as securities. The SEC’s language was unambiguous: staking activities tied directly to protocol consensus mechanisms do not involve the offer or sale of securities.

Commissioner Hester Peirce reinforced the agency’s stance during remarks at the Bitcoin Conference, encapsulating the essence of the decision by stating, “Providing security is not a security.” The move comes just months after the Commission drew similar boundaries for Proof-of-Work mining in March 2025, signaling a broader redefinition of what constitutes a security within decentralized networks.

Yet not all SEC officials were in agreement. Commissioner Caroline Crenshaw voiced sharp criticism, asserting the clarification was legally inconsistent and misleading. “These staff statements paint an incomplete picture that obfuscates, rather than clarifies, what the law is,” she said, contending that most staking-as-a-service arrangements still meet the criteria for investment contracts under existing interpretations of the Howey Test. Her opposition highlights the ongoing friction within the Commission regarding crypto asset oversight.

At the same time, REX Shares, a U.S.-based ETF provider, filed a prospectus with the SEC to launch Ethereum (ETH) and Solana (SOL) staking ETFs. Rather than pursue the traditional and lengthy 19b-4 rule change route, REX opted for a 40-Act filing under the Investment Company Act of 1940. This decision potentially accelerates regulatory clearance by sidestepping the more stringent scrutiny typical of crypto-related ETF proposals.

ETF analyst James Seyffart highlighted the structural novelty of the filings, explaining that these funds are organized as C-corporations—a rarity in the ETF space. This structure allows the funds to take on both current and deferred tax liabilities, which are baked into their Net Asset Value. The move was deliberate, designed to enable staking participation while staying clear of securities classification pitfalls.

Seyffart also revealed that REX will use wholly owned Cayman Islands subsidiaries to gain exposure to ETH and SOL. These offshore entities will acquire and stake the tokens directly, facilitating yield generation without triggering additional U.S. regulatory burdens. “All of this, assuming they launch in the near future, is a bunch of clever legal and regulatory workarounds to get these products to market,” he wrote in a post dated May 30, 2025.

Nate Geraci, President of the ETF Store, underscored the urgency and readiness behind the filings, stating, “Looks like two crypto ETF launches are imminent.” According to Geraci and Seyffart, each ETF is expected to stake at least half of the digital assets held, providing yield-bearing exposure for investors in a fully regulated structure.

The filings arrive amid broader regulatory bottlenecks that have delayed other crypto ETF products. The SEC has recently postponed decisions on Grayscale’s proposed Avalanche and Cardano spot ETFs, underscoring the friction between innovation and regulation. The REX structure may offer a blueprint for how crypto financial products can navigate the SEC’s cautious posture. Earlier this year, BlackRock’s Robbie Mitchnick described their Ether ETF as a “tremendous success,” but conceded it was “less perfect” without staking—echoing a widely held industry view that yield generation is the next frontier for crypto ETFs.

This article has been refined and enhanced by ChatGPT.