The US Securities and Exchange Commission’s (SEC) Crypto Task Force recently met with industry representatives on Feb. 5 to discuss the potential inclusion of staking in crypto exchange-traded products (ETPs).
Key industry figures such as Jito Labs CEO Lucas Bruder, chief legal officer Rebecca Rettig, Multicoin Capital managing partner Kyle Samani, and general counsel Greg Xethalis were present at the meeting. They argued that staking is a crucial component of proof-of-stake (PoS) blockchain networks like Ethereum (ETH) and Solana (SOL).
Staking allows network validators to lock up native assets such as ETH or SOL to participate in the network’s consensus mechanism. In return, they receive transaction fees and newly minted tokens. However, the exclusion of staking from ETPs limits investors from fully benefiting from PoS-based assets, thereby reducing potential returns and weakening network security.
The SEC has previously raised concerns about incorporating staking in ETPs, including issues related to redemption timelines, tax treatment of staking rewards, and the classification of staking as a securities offering. To address these concerns, industry representatives proposed two models during the meeting.
The first model, the “Services Model,” involves allowing a portion of ETP-held assets to be staked through third-party service providers running validator nodes. This approach ensures that assets remain staked while enabling timely redemptions. The second model, the “Liquid Staking Token Model,” suggests ETPs holding liquid staking tokens (LSTs) representing staked assets to streamline staking within an ETP framework.
Despite the SEC’s previous reservations, recent developments indicate a potential shift in regulatory perspective. The appointment of pro-crypto Commissioner Mark Uyeda as the SEC’s acting chairman and the establishment of a Crypto Task Force led by pro-crypto Commissioner Hester Peirce suggest a more open attitude towards crypto regulations.
While the SEC has yet to make a definitive decision, the ongoing discussions and interest in crypto-based financial products signal a positive step towards accommodating staking in ETPs. Analysts like Bloomberg ETF analyst James Seyffart view the SEC’s engagement in these discussions as a promising start for the future of crypto regulations.