SEC Delays ETH and Solana ETF Initiatives Due to Crypto law Concerns
The U.S. Securities and Trading network Commission is once again halting the advancement of new digital currency ETF proposals. This time, it’s highlighting two funds associated with Ethereum and Solana ETFs that were intended to provide investors the chance to earn locking tokens rewards. These offerings originate from REX Shares and Osprey Funds, and while the concepts appear innovative, the SEC remains skeptical about their adherence to the regulations.
The Primary Concern: Do These Funds Qualify as Investment Companies?
Central to the concern is whether these funds align with the legal definition of an investment company as established by U.S. law. The SEC holds a stringent perspective on what constitutes such a company. It seeks to ascertain whether the primary activity of these funds is indeed investing in securities. If this condition isn’t met, they are ineligible for the standard registration approach that most mutual funds or ETFs undergo.
The SEC has voiced concerns that ETH and Solana ETFs geared toward staking exposure may not satisfy ETF criteria under the Investment Company Act, revealing regulatory ambiguity about crypto earning yield and the classification of crypto assets as securities. Read more:… pic.twitter.com/WxlRLLYMA9
— etf.com (@etfcom) June 2, 2025
The regulator is additionally concerned that the wording in the applications might mislead investors . If the funds do not technically fulfill the requirements to be considered investment companies, the SEC does not want them operating as if they do.
Cayman Islands and Innovative Structures
Another concern is the manner in which these funds are organized. Rather than adhering to a straightforward framework, they employ various corporate entities, including C-corporations and offshore subsidiaries located in jurisdictions like the Cayman Islands. While this is not unusual in finance, it does add complexity.
The SEC indicates these arrangements may not conform to Rule 6c-11, which dictates how ETFs can be offered and traded in the U.S. If they fail to meet all the necessary criteria, the commission can postpone or prevent their introduction.
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The Locking tokens Aspect
A significant draw of these funds is their promise of staking rewards. This occurs when crypto asset holders lock their assets to base level distributed record networks, receiving additional tokens in return. Locking tokens has become a crucial element in the operations of networks like ETH and Solana as both now utilize proof-of-stake systems.
Though the SEC hasn’t prohibited staking, it has been cautious in approving products linked to it. The agency has raised alarms about potential risks, such as the absence of clear safeguards for investors and the chances of returns being misconstrued. Additionally, it remains uncertain how earning yield fits within the legal frameworks of traditional finance.
What Lies Ahead?
The ETFs were technically activated on May 30, yet that does not imply they are ready for launch. So far, they are not listed on any exchanges, and both REX and Osprey have communicated that they won’t proceed until the situation is clarified. The SEC has indicated that it might take additional measures if the issues are not addressed.
At present, both firms are working with regulators to resolve matters. Their success could influence the future of other crypto funds that incorporate earning yield.
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A Greater Challenge for Crypto ETFs
This is not merely an isolated situation. The SEC’s response here demonstrates the ongoing difficulties of integrating crypto into the ETF landscape, particularly when introducing newer elements like staking. While straightforward BTC ETFs managed to navigate the regulatory landscape earlier this year, more intricate proposals still face significant challenges.
The SEC’s approach to this case will likely establish a precedent for Ethereum, Solana, and any forthcoming staking-related ETFs. The crypto sector is observing closely. If granted approval, ETH and Solana earning yield ETFs could pave the way for institutions to legally access proof-of-stake networks.
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Key Takeaways
- The SEC is postponing Ethereum and Solana staking ETF plans from REX and Osprey due to concerns regarding legal and structural regulation.
- The core question is whether these funds align with the definition of a U.S. investment company according to prevailing financial regulations.
- The SEC raised concerns regarding intricate fund structures that involve offshore entities such as subsidiaries based in the Cayman Islands.
- Staking rewards are a fundamental attribute of these ETFs, but the SEC continues to exercise caution in approving products that utilize such mechanisms publicly.
- These delays underscore the considerable regulatory obstacles faced by crypto ETFs featuring innovative characteristics in the U.S.
The post SEC Puts ETH and Solana ETF Plans on Long-term holding Over Crypto law Worries appeared first on 99Bitcoins.
