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SEC Accepts 21Shares ETF Staking Application
Obstacles to ETF Participation in Staking
SEC Interested in Token Staking
The Cboe BZX Exchange has submitted a 19b-4 filing to the U.S. Securities and Exchange Commission (SEC) seeking permission for the 21Shares Core Ethereum ETF to participate in staking. This application was submitted on February 12 and was officially accepted by the SEC yesterday. If approved, the ETF will be able to stake its held Ether (ETH), allowing investors to earn staking rewards.
The staking mechanism is central to Ethereum’s Proof of Stake (PoS) consensus mechanism, where participants must lock up ETH to validate network transactions and earn rewards.
In 2024, despite the SEC approving several Ethereum ETFs, it has explicitly prohibited them from engaging in staking. The agency believes that staking may violate federal securities laws and views staking services as unregistered securities offerings. Based on this stance, the SEC has previously taken enforcement actions against Coinbase and Kraken, accusing them of operating illegal staking programs.
To mitigate regulatory risks, Cboe has proposed the use of a “Point-and-Click Staking” mechanism. Unlike the traditional staking model, which requires transferring ETH to a third party, this method allows the ETF to stake directly without moving the assets.
This model reduces the risk of asset theft but cannot fully avoid slashing penalties, which entail the confiscation of some or all staked ETH due to violations of network rules.
Cboe further explained that if the 21Shares Core Ethereum ETF does not participate in staking, it would be akin to an equity ETP foregoing the dividend income of its underlying assets. The company believes that staking ETH not only enhances investor returns but also improves the ETF’s ability to track Ethereum market performance and optimizes the fund’s creation and redemption processes.
In response to this news, Fox Business reporter Eleanor Terrett revealed that the current SEC working group is quite interested in the “staking mechanism.” Eleanor Terrett wrote:
“According to a source who recently spoke with the SEC, the agency is ‘very, very interested’ in staking and even requested the industry to provide a memorandum detailing the different types of staking and their advantages.”
Additionally, the source disclosed that the SEC may issue guidance related to staking in the near future, as it has become a topic of active interest for them.