VanEck, one of the issuers of the first spot Bitcoin exchange-traded funds (ETFs) in the United States, announced on June 27 that it had applied to issue a new Solana ETF. Matthew Sigel, head of digital asset research at VanEck, announced the news on X, saying that the company has applied to the U.S. Securities and Exchange Commission (SEC) to establish an ETF called "VanEck Solana Trust." The fund aims to take advantage of Solana's decentralized nature, high utility, and economic viability. According to Sigel, this is also the first Solana ETF application in the United States.
VanEck Solana Trust's goals and mechanisms
The investment objective of VanEck Solana Trust is to reflect the performance of the Solana cryptocurrency price, net of the trust's operating expenses. The trust will value its shares daily using the MarketVector Solana Benchmark Rate Index, according to the filing. The index is based on prices provided by the top five SOL trading platforms that MarketVector considers to be ranked, as determined by the industry-leading CCData centralized exchange benchmark review report.
Legal obstacles
While U.S. securities regulators have tried to restrict cryptocurrency-based ETFs due to concerns about the potential for market manipulation, the biggest obstacle is that the SEC Enforcement Division has made it clear that SOL is an unregistered security. The SEC reached this conclusion based on the securities laws passed in the 1930s and the Howey test. The Howey test determines whether something constitutes an "investment contract." Basically, if a person invests money in a common enterprise and expects to profit from the labor of others, the SEC can declare the asset a security.
However, many crypto legal experts have questioned this, arguing that it is meaningless to compare tokens backed by decentralized, globally distributed ledgers with company equity. For example, industry lobbyists at Coin Center have published many reports arguing that the decentralized and permissionless technical level of blockchains and the distribution of tokens should be taken into consideration.
Decentralization controversy
While Solana may be considered less decentralized than Ethereum in some ways, this is not a "binary" issue. Regulators may determine whether they should be viewed in the same way based on their respective stages of development. Solana developer and Helius co-founder Mert Mumtaz pointed out that Solana is in the top 1% of decentralized networks and is a builder's commodity because it is needed to prioritize transactions, obtain network bandwidth through staking, allocate storage, and pay network fees.
Market surveillance and strategy
The SEC has expressed concerns in the past about market surveillance standards related to the cryptocurrency spot market, which is one of the reasons why the SEC waited a decade to approve the first Bitcoin spot ETF application after reviewing it. Austin Campbell, an associate professor at Columbia Business School, said VanEck's application is unlikely to be approved, but its strategy seems to be to "get on the board early." Other analysts have also suggested that other companies may quickly follow VanEck's lead, just as happened after BlackRock unexpectedly submitted a spot Bitcoin ETF document in mid-2023.
While legal challenges could hinder VanEck’s application, many legal commentators are optimistic that a large number of ETFs will eventually be approved, although that may require management changes.
Elections and Regulation
Cryptocurrency has become a more talked-about election topic than ever before, with many predicting that former President Donald Trump’s recent support for the industry could boost his popularity. Scott Johnsson, general partner at Van Buren Capital, noted that VanEck’s application could be “bad” for a Biden presidency, given the widespread perception that his administration is against cryptocurrencies. While the likelihood of a rejection is high, pushing the boundaries is meant to raise questions about how the SEC regulates cryptocurrencies.
Brian Frye, a law professor at the University of Kentucky, said that the SEC may soon give final approval to the ETH ETF, so it is inevitable that the Solana ETF will eventually be approved, although the current SEC leadership is not enthusiastic about cryptocurrencies in general and approving these ETFs. Ultimately, the SEC may have "no choice" to approve these applications.
In summary, VanEck’s Solana ETF application marks an important step for the cryptocurrency market and regulatory environment, and despite many challenges, its prospects remain exciting.