June 1, 2025

In a surprise regulatory twist, the U.S. Securities and Exchange Commission (SEC) is pumping the brakes on two high-profile crypto ETF proposals from REX Shares and Osprey Funds—both designed to offer staking rewards via Ethereum ($ETH ) and Solana ($SOL ). Although the proposals had cleared initial hurdles, the SEC is now raising fresh concerns that could delay or even derail their launch entirely.

Staking ETFs: A New Frontier

Unlike traditional crypto ETFs, which merely track the price of digital assets, REX and Osprey's proposed products would go a step further by offering investors a slice of the staking rewards generated by the underlying crypto holdings. In simple terms: if Ethereum or Solana are being used to secure their respective networks and generate yield, ETF investors would get a piece of that pie.

This innovative model is appealing to crypto-savvy investors looking for both exposure and yield. But that same innovation is what’s making regulators uneasy.

Regulatory Whiplash

Despite receiving preliminary green lights earlier this year, the SEC now seems to be reconsidering the entire structure of staking-enabled ETFs. According to sources familiar with the matter, regulators are questioning whether such products meet the legal definition of an "exchange-traded fund" under federal securities laws.

The key issue? Staking involves locking up assets and engaging in network validation—an operational model far removed from the passive asset-holding typically associated with ETFs. That raises questions about investor risk, custody, and transparency.

Implications for the Crypto Market

This isn’t just a speed bump for REX and Osprey—it’s a sign of broader uncertainty. The SEC has been inching toward clearer frameworks for digital assets, but staking remains a gray area. If the agency decides that staking rewards disqualify a product from ETF status, it could shut the door on similar innovations for years.

For now, both REX and Osprey are reportedly in talks with regulators, attempting to address the SEC's concerns and salvage their product timelines. But with no clear legal precedent, the outcome is far from certain.

A Tense Waiting Game

Investors and crypto advocates alike are watching closely. The outcome of this review could shape how staking—and crypto yield-generating mechanisms in general—are integrated into mainstream financial products.

If the SEC ultimately gives the green light, it would mark a major milestone in the merging of traditional finance and decentralized technology. If not, it might be back to the drawing board—for issuers, developers, and regulators alike.