The U.S. Securities and Exchange Commission (SEC) officially accepted the application for the Canary PENGU ETF from Canary Capital on August 1. This is the first spot ETF to package meme coin PENGU and Pudgy Penguins NFTs together, knocking on the door of mainstream investors.

Exchange-traded funds include meme coins and NFTs for the first time

The Canary PENGU ETF filed its application on March 20 this year. According to the application, this ETF mainly holds PENGU tokens, with a weight allocation of about 80%–95%; an additional 5%–15% is allocated to top Pudgy Penguins NFTs.

According to the application, the fund managers expect to adjust the NFT holdings based on rarity, visual appeal, and market price fluctuations, while also holding a small amount of native tokens from Solana and Ethereum to ensure liquidity. By ETF-ing 'on-chain operations', investors can buy and sell highly volatile meme coin mixed NFT digital assets within familiar securities accounts.

The price of PENGU tokens has increased by 132% over the past 30 days, with a market capitalization surpassing 2 billion dollars.

Regulatory challenges

The subsequent review by the SEC will face three major issues: asset classification, prevention of price manipulation, and investor protection. Do NFTs belong to securities, commodities, or an independent asset class? Do meme coins trigger the Howey Test? These undefined areas will affect disclosure obligations and custody requirements. Moreover, NFTs cannot be settled using traditional standardized units, posing unprecedented technical challenges for fund valuation and rebalancing.

The fragmentation of global regulation and the on-chain anonymity features also increase the compliance difficulty for anti-money laundering (AML). The SEC's acceptance is just the beginning; final approval still requires multiple rounds of consultations and modifications.

If the Canary PENGU ETF can pass the review, it will undoubtedly provide traditional funds with new allocation options and may lead to more 'token + NFT' hybrid products. However, keep in mind that due to Canary Capital's frequent submissions of altcoin ETF applications (including AXL, SUI, LTC, etc.), some in the community believe this may be a marketing strategy, so it is advised to maintain rational thinking when considering information.