Crypto ETF Staking Under SEC Review After Jito Labs, Multicoin Talks

The U.S. Securities and Exchange Commission (SEC) is taking a closer look at whether staking should be part of crypto exchange-traded products (ETPs). In a recent meeting on February 5, the SEC’s Crypto Task Force, led by Commissioner hester peirce hester peirce     Hester Peirce of the Securities and Exchange Commission, often known as "Crypto Mom," is one of the most outspoken supporters of cryptocurrency at the government level in the United States. Prior to joining the Securities and Exchange Commission, she worked in a variety of roles evaluating and formulating financial regulations, having graduated from Yale Law School. She worked at George Mason University's Mercatus Center, a libertarian think tank, most recently before becoming commissioner, where she produced, among other things, critiques of legislation like the Dodd-Frank Act.   She, often known as "Crypto Mom," is a member of the Securities and Exchange Commission. She was born in Ohio and graduated from Yale Law School. Prior to joining the Securities and Exchange Commission, she worked in a variety of capacities evaluating and creating financial regulations. She worked at George Mason University's Mercatus Center, a libertarian-leaning think tank, most recently before becoming commissioner, where she produced, among other things, critiques of legislation like the Dodd-Frank Act.   As chairman Jay Clayton steps out and a Joe Biden nominee takes his place, Republican Peirce will find herself in the minority. Clayton, on the other hand, was not particularly forward-thinking when it came to digital assets. President Biden has declared his intention to select Gary Gensler, a crypto expert who would presumably be more prepared to deal with Peirce than Clayton was.   The SEC's approval of initial public offerings for crypto businesses like Coinbase, the first U.S.-authorized Bitcoin ETF, and, of course, the ICO safe harbour are all obvious targets for Peirce. We won't know what Peirce thinks about the SEC's pursuit of Ripple until after the fact, per SEC protocol, but the outcome of that case will almost certainly serve as a springboard for more clarity.   Peirce told guests at the Crypto Finance Conference in January that the future SEC chairman's priority should be supporting innovation and giving regulatory clarity: "We need to embrace innovation and figure out how to create a regulatory framework that encourages it, which, in our field, I believe means providing clarity." EntrepreneurInvestorFinanceCrypto and Blockchain Expert , sat down with Jito Labs and Multicoin Capital to discuss the idea.

If approved, this move could change how crypto ETFs function, allowing investors to earn staking rewards while holding assets.

But with the SEC’s history of caution around crypto regulations, is this the breakthrough the industry has been waiting for?

Staking Discussion Details Revealed

On February 14, the SEC published a memorandum summarizing the meeting. The discussion focused on integrating staking into crypto ETPs and was attended by Jito Labs CEO Lucas Bruder, CLO Rebecca Rettig, and Multicoin Capital Managing Partner Kyle Samani, along with General Counsel Greg Xethalis.

Why Add Staking to Crypto ETPs?

The main argument for staking in ETPs is that it could benefit investors by generating additional returns while also supporting blockchain networks.

“We believe first that including staking as a feature in certain ETPs will benefit investors, more accurately reflect the benefits of native network assets and permit issuers to support the security of the networks in which the assets operate,” the filing read.

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The task force is considering two possible approaches:

1. Validator-Based Staking: A portion of the fund’s assets would be staked through service providers running validators while still allowing timely redemptions.
2. Liquid Staking Tokens (LSTs): Each staked asset would generate a liquid staking token that investors could trade freely.

SEC’s Concerns About Staking ETFs

Despite the potential benefits, the SEC is cautious about approving staking ETFs due to few key concerns.

“Restricting staking in cryptoasset ETPs harms (i) investors, by crippling the productivity of the underlying asset and depriving investors of potential returns, and (ii) network security, by preventing a significant portion of an asset’s circulating supply from being staked,” the meeting notes read.

As per the documents, the SEC has been cautious about staking ETFs for three main reasons. The lockup “unbonding periods” could conceivably slow down the redemption process for investors and complicate tax implications. There is also uncertainty around whether staking as a service counts as a securities transaction.

21Shares Ethereum ETF Seeks Staking Approval

Meanwhile, the CBOE BZX Exchange has filed a request (Form 19b-4) with the SEC to allow staking in the 21Shares Core Ethereum ETF. This is the first formal attempt to introduce staking in a U.S.-listed ETF, following the SEC’s approval of spot Ethereum ETFs last year.

If approved, staking in crypto ETFs could mark a major shift in the industry, offering investors new ways to earn rewards while holding digital assets. The SEC’s decision will be closely watched, as it could set a precedent for future crypto investment products.

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If the SEC gives staking the green light, crypto ETFs could enter a whole new era.