The SEC's request for asset management companies to modify their Solana ETF application documents suggests that this new type of crypto investment product may soon be approved for listing.
On Friday, media reports indicated that at least three asset management companies have received modification requests from the U.S. Securities and Exchange Commission, requiring adjustments to two key issues in their Solana ETF application documents. The controversial focus is on how the fund handles cryptocurrency redemption mechanisms and whether investors are allowed to earn yields by staking Solana tokens.
This proactive communication is seen as a positive signal by the market. Noelle Acheson, author of Crypto is Macro Now, stated:
The SEC's move to require ETF issuers to modify S-1 documents sounds like formal approval may be just a few days or at most a few weeks away. This would be a significant change for the spot crypto market.
A spokesperson for 21Shares AG confirmed: We have been asked to address and submit a revised S-1 document, and we plan to do so soon. According to informed sources, two other fund issuers competing to launch a Solana ETF have also received similar feedback from the SEC.
Technical Challenges Become the Focus: Physical Redemption vs. Staking Yields
The complexity lies in how closely the issuer of the Solana fund can replicate traditional ETF structures when dealing with speculative tokens—these tokens operate very differently from stocks and bonds.
It is currently unclear whether these funds are allowed to use underlying crypto assets rather than cash for stock redemptions, known as the "physical redemption" mechanism. Although this mechanism is relatively straightforward in traditional asset classes, it becomes extremely complex in crypto products due to challenges surrounding custody, security, and settlement.
Another controversial focus is staking—this is a core feature of so-called proof-of-stake blockchains like Ethereum and Solana, allowing holders to earn yields. According to data from Coinbase Global Inc., the staking yield for Solana exceeds 5%, while Ethereum's is about 2%.
Bloomberg Intelligence ETF analyst James Seyffart pointed out:
Anyone putting cash into products that do not stake is losing yield. If physical redemption and staking are allowed, these ETFs will become better long-term investment products.
Intense Competition: Seven Institutions Compete for Trillion-Dollar Market
According to data compiled by Bloomberg Intelligence, at least seven issuers currently wish to launch a Solana ETF, including Grayscale Investments LLC, Bitwise Asset Management, VanEck Asset Management, and Canary Capital.
Notably, two ETFs allowing staking proposed by REX Financial and Osprey Funds have recently become the focus of the SEC. After the issuers indicated a possible launch in mid-June, regulators questioned whether these funds fit the definition of an investment company under federal law.
However, Bloomberg Intelligence's Seyffart and Eric Balchunas wrote in a report that this situation "could ultimately force regulators to confront the issue". The SEC may now focus on processing the 19b-4 filings for Solana and staking ETFs sooner than planned.
Two analysts predict that the probability of the Solana ETF being approved this year is as high as 90%.