21Shares Ethereum ETF Seeks SEC Approval for Staking—A Game Changer?

The Cboe BZX Exchange has proposed a rule change to the U.S. SEC to allow staking within the 21Shares Core Ethereum (ETH) ETF. The filing, submitted via Form 19b-4, could make this the first Ethereum ETF in the U.S. to incorporate staking.

Under the proposal, the ETF’s trust would stake its Ethereum to help secure the blockchain while earning staking rewards. This is a notable shift, as U.S. ETH ETFs have so far avoided staking due to regulatory concerns surrounding securities classification and the complexities of integrating staking within a regulated framework.

By enabling staking, the ETF could offer investors additional yield, narrowing the gap between the benefits of direct ETH ownership and an ETF structure. The filing aims to amend previous regulations, following discussions with the ETF’s sponsor, to allow staking for the Ethereum held by the trust.

Previously, the SEC approved Ethereum ETFs without staking features, including offerings from 21Shares, BlackRock, and Fidelity. If this staking proposal is approved, it could pave the way for other cryptocurrency ETFs to adopt staking, enhancing their attractiveness with a yield-generating component.

Staking involves locking up cryptocurrency to help secure the Ethereum blockchain, with participants earning rewards as part of the network’s proof-of-stake mechanism. However, the SEC remains cautious, as staking could be considered a security under the Howey Test, which defines securities based on investment in a common enterprise with profit expectations driven by the efforts of others.

According to Bloomberg ETF analyst James Seyffart, the 21Shares Core Ethereum ETF is the first to seek SEC approval for staking. He anticipates a final decision from the SEC around October 30.

The amendment specifies that the ETF’s sponsor will periodically stake a portion of the trust’s ether through designated, reliable staking providers, which could include the custodian or its affiliate. However, the sponsor will exclude its own affiliates from serving as staking providers. Any staking rewards earned would likely be classified as income for the trust.