The Cboe BZX Exchange has submitted a formal request to the US Securities and Exchange Commission (SEC) to allow staking for the 21Shares Core Ethereum exchange-traded fund (ETF), according to a February 12 filing.
If approved, the ETF would stake its Ethereum (ETH) holdings, enabling investors to earn staking rewards while maintaining ETF exposure to Ethereum.
Regulatory Challenges in Staking
Staking plays a vital role in Ethereum’s proof-of-stake (PoS) consensus mechanism, where participants lock up ETH to validate network transactions and earn rewards.
In 2024, the SEC approved multiple Ethereum ETFs but explicitly prohibited staking, citing concerns that staking services could resemble unregistered securities offerings. This stance led to enforcement actions against Coinbase and Kraken, both of whom faced accusations of operating unlawful staking programs.
To address regulatory concerns, Cboe proposes “point-and-click staking”, a method that allows the ETF to stake ETH without transferring assets to third parties. This approach reduces risks associated with custody and security, though it does not entirely eliminate potential slashing penalties, where staked ETH could be forfeited for network violations.
The firm argues that prohibiting staking in an Ethereum ETF is akin to an equity exchange-traded product (ETP) declining dividends from its underlying holdings. Allowing staking, they assert, would enhance investor returns, improve the ETF’s ability to track Ethereum’s performance, and optimize the fund’s creation and redemption processes.
Will the SEC Approve Staking for ETFs?
This filing marks the first instance of a US-listed crypto ETF seeking staking privileges. If approved, it could set a precedent for other funds looking to integrate staking rewards into their offerings.
Optimism regarding approval has grown following recent leadership shifts at the SEC, with some policymakers perceived as more open to crypto-related financial products. Commissioner Hester Peirce, a long-time crypto advocate, has indicated that staking in Ethereum ETFs remains an area for active discussion.
Meanwhile, Bloomberg ETF analyst James Seyffart predicts that if the SEC acknowledges the filing, a final decision could come around October.
Implications for Ethereum Investment Products
If successful, Cboe’s proposal could redefine the Ethereum ETF landscape, opening new opportunities for investors seeking exposure to staking rewards within a regulated framework. The approval would also further solidify Ethereum’s position as a yield-generating asset in traditional finance, bridging the gap between crypto staking and institutional investment vehicles.
