Author: Weilin, PANews
On July 3, the first U.S. Solana Staking ETF—'REX-Osprey Solana Staking ETF (Ticker: SSK)' officially listed on the Chicago Board Options Exchange (Cboe BZX), receiving a more positive market response. The first-day trading volume was $33 million, with an inflow of $12 million, outperforming many market observers' expectations.
The ETF not only tracks the market price of Solana (SOL) but also offers investors Solana's native staking rewards, managed jointly by REX Shares and its sister company Osprey, with first-day trading volume exceeding that of the earlier launched Solana futures ETF and XRP futures ETF.
Compared to traditional crypto asset ETFs, the REX-Osprey Solana Staking ETF offers an innovative feature—variable staking reward monthly dividends, with the current dividend yield at 7.3%. Bloomberg ETF analyst James Seyffart commented, 'This is a healthy trading start,' pointing out that the trading volume reached $8 million in the first 20 minutes after listing.
Providing direct price exposure to SOL along with staking rewards.
Looking back at the recent performance of the SOL futures ETF, on March 17, the Solana futures ETF was listed on the Chicago Mercantile Exchange (CME), with a trading volume of $12.1 million on the first day, lower than market expectations. On March 20, Volatility Shares launched two Solana futures ETFs, namely The Solana ETF (SOLZ) and 2x Solana ETF (SOLT). According to Yahoo Finance data, as of April 1, both products have performed steadily since their listing, with average daily trading volumes of approximately 80,000 and 140,000 shares, equivalent to $1.25 million and $2.16 million, maintaining a relatively small scale, indicating that market demand has not been effectively boosted.
In contrast, in January 2024, the trading total for several spot Bitcoin ETFs listed on their first trading day reached $4.6 billion.
According to the official website, SSK aims to meet the needs of various investors:
Retail investors seeking exposure to cryptocurrencies through brokerage accounts.
Crypto-native investors hoping to bridge blockchain innovation and mainstream adoption.
Financial advisors and registered investment advisors (RIAs) looking for compliant access paths to blockchain income.
Institutions needing ETF transparency.
According to official indications, staking rewards are paid to the fund in the form of physical assets and increase its net asset value (NAV), which may lead to taxable income for shareholders. Depending on the fund's earnings and distributions, this income may be treated as ordinary income, capital gains, or capital returns. Investors should consult tax advisors for relevant guidance.
'C Corporation' structure bypasses traditional regulatory framework.
The REX-Osprey Solana Staking ETF was able to launch in a relatively short time partly due to its choice of the 'C Corporation' registration form. This structure allowed the fund to bypass traditional ETF approval processes and list quickly. Unlike traditional crypto asset ETFs, the REX-Osprey Solana Staking ETF chose to register under the Investment Company Act of 1940 rather than the Securities Act of 1933.
The requirements of the Investment Company Act of 1940 for ETFs must be diversified, regularly distribute income, and avoid investing in assets deemed too risky for retail investors (such as futures, commodities, and Bitcoin derivatives). These restrictions make funds under the Investment Company Act of 1940 very suitable for equities and fixed income assets but more complicated when dealing with assets like commodities and futures, which typically fall under the Securities Act of 1933—such as setting up a trust (physical trust provides access to spot prices) and publicly traded partnerships or commodity pools (based on futures portfolios).
At the same time, the tax rules of the Investment Company Act of 1940 are straightforward, with capital gains tax on holdings over 12 months at 20%, and distributed income taxed at ordinary income tax rates (up to 37%). The tax treatment under the Securities Act of 1933 requires handling complex tax paperwork.
Unlike existing spot Bitcoin and Ethereum ETFs, SSK falls under a different regulatory framework, registered under the Investment Company Act of 1940. This means that a qualified custodian, rather than the fund issuer, is required to hold the underlying assets. Anchorage Digital, currently the only federally regulated bank authorized to both custody and stake digital assets, serves this role.
The REX-Osprey Solana Staking ETF submitted a prospectus to the SEC, highlighting that double taxation increases investment costs or could attract imitation from other competitive coin ETFs.
This structure is not without controversy, with tax issues being one of its main challenges. Since staking rewards are treated as ordinary income, the fund needs to pay corporate income tax internally, while investors must bear dividend taxes and capital gains taxes. This results in a higher overall tax burden, even though the fund's management fee is 0.75%.
Moreover, while the SEC's approval process has not encountered significant obstacles, due to the innovative nature of this structure, the SEC has shown hesitance regarding the C Corporation's avoidance of traditional approval processes, implying uncertainty about whether this model will be applicable for the launch of more funds in the future. In the context of increasing market competition, the REX-Osprey Solana Staking ETF may provide a reference structure for other crypto asset ETFs in the future but may also face more regulatory scrutiny down the line.
Independent crypto researcher KOL Jason Chen explained: 'So the low threshold and fast approval speed mean that as long as the SEC does not oppose it, it can be completed within 75 days from submission to approval. But the downside is that on one hand, because it has not gone through very strict approval, the subsequent disclosure requirements will be much higher than the periodic disclosures of 19b-4 and will require daily disclosures, increasing management costs, and will also be subject to double taxation. When the coin price rises, it will be seen as corporate profits, resulting in a 21% corporate income tax, and investors will also be charged dividend taxes and capital gains taxes.'
Some users also commented under the topic of predicting the market, raising corresponding risks, namely that the price of the ETF may not accurately reflect the price movements of SOL. The SEC documents submitted by SSK indicate that 'under normal market conditions, the SSK ETF will invest at least 80% of its net assets in reference assets and other assets providing exposure to reference assets. The fund will invest directly or through REX-Osprey SOL subsidiaries.
The application process was fraught with twists and turns but ultimately succeeded in 'clearing customs.'
In May of this year, REX Shares and Osprey Funds submitted applications to the U.S. Securities and Exchange Commission (SEC) seeking approval to launch C Corporation ETFs focused on Solana and Ethereum.
On May 30, the SEC requested REX and Osprey to delay the effective date of their registration statements, citing unresolved issues regarding whether the proposed fund structure complies with the definition of 'investment company' under the Investment Company Act of 1940.
On June 29, the SEC notified REX Shares and Osprey Funds that it had 'no further comments' on their submitted Solana Staking ETF application. In ETF regulatory terminology, industry observers typically interpret this statement as a tacit approval from the SEC. This is similar to the 'tacit approval' seen when companies like BlackRock and Fidelity launched spot Bitcoin ETFs.
Bloomberg analyst James Seyffart pointed out at the time that the 'unique' C Corporation format of these funds might bypass the typical 19b-4 rule change process, and the SEC's silence on C Corporation avoidance methods now seems to confirm it as a compliant solution.
Typically, staking required handing tokens over to a crypto exchange or setting up one's own validator, but the SSK ETF significantly lowers this barrier. Traditional investors can obtain passive exposure to Solana and earn staking rewards through the same brokerage accounts they use for stocks or index funds. The approval of the Solana Staking ETF now provides a roadmap. However, Ethereum's staking mechanism (such as penalties and longer unlock periods) may present more complexities.
There are market views suggesting that, at least under the current U.S. government's regulations, the SEC has not attempted to completely block staking. It simply requires a suitable framework: one that can handle income, taxation, custody, and compliance in a way comprehensible to traditional finance. Although REX and Osprey are not as well-known as BlackRock, they now hold a first-mover advantage in this category that could potentially become a billion-dollar ETF class.
Currently, multiple companies are competing to launch a Solana spot ETF, with Invesco and Galaxy joining the race at the end of June. Analyst Eric Balchunas stated that these funds could receive approval within two to four months. At least 60 other competitive coin ETF proposals are currently awaiting SEC review and potential approval.
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"The SOL Staking ETF relies on 'C Corporation' registration to bypass approval, are competitors of coin ETFs on the way?" This article was originally published on (Block 客).
