The U.S. Securities and Exchange Commission (SEC) has raised legal concerns over proposed Ethereum (ETH) and Solana (SOL) staking exchange-traded funds (ETFs), casting doubt on their approval and signaling potential delays.
Filed jointly by REX Shares and Osprey Funds, the proposed REX-Osprey ETH and SOL ETFs aim to provide investors with exposure to staking rewards from two of the largest proof-of-stake (PoS) cryptocurrencies. But the SEC’s response, delivered May 30, has put the spotlight back on ongoing regulatory ambiguity in the crypto ETF market.
Unconventional Filing Under the 1940 Act
The sponsors submitted the ETFs under the Investment Company Act of 1940, bypassing the more common 19b-4 rule change process used for most spot crypto ETFs. The 1940 Act, designed to regulate mutual funds and traditional ETFs, requires that the funds primarily invest in securities.
According to the May 31 filing, both ETFs would allocate at least 80% of their assets to ETH or SOL and distribute staking rewards as dividends to investors. The REX-Osprey ETH ETF proposes a 1.28% annual expense ratio, while the SOL version comes in at 1.4%.
Staking, central to PoS blockchains, allows investors to lock up crypto assets to support network operations and earn yield. Ethereum moved to PoS in 2022, and Solana has operated on the model since its launch.
SEC Raises Red Flags
In a letter to ETF Opportunities Trust, the SEC said it has “unresolved questions” about whether the funds qualify as investment companies under the 1940 Act. The issue hinges on whether ETH and SOL meet the legal definition of “securities.”
“The staff has unresolved questions about whether the REX-Osprey ETH and SOL ETFs are structured to primarily invest in securities,” the SEC wrote, according to Decrypt.
The concern echoes the agency’s broader stance on crypto assets. While Bitcoin (BTC) has been largely treated as a commodity, the SEC has suggested that assets offering yield, such as through staking, may fall under securities law via the Howey Test.
Although the registration statement for the ETFs became effective May 30, the products have not yet launched or been listed on any exchange.
Market Momentum Meets Regulatory Friction
The filings arrive at a time of rising institutional interest in Solana, bolstered by the Chicago Mercantile Exchange’s launch of SOL futures in March. Analysts had hoped that the ETFs would follow the blueprint of earlier BTC and ETH ETF approvals, buoyed by similar futures-based legitimacy.
However, concerns over Solana’s network reliability persist. “Solana’s brittle uptime could struggle with real yield demands,” posted user @SAG3_ai on X.
Bloomberg Intelligence analyst Eric Balchunas initially called the filing a “clever maneuver,” predicting a potential launch by June. But the SEC’s caution now suggests that timeline may be overly optimistic.
Investor Stakes and Fee Backlash
For investors, these ETFs could open the door to staking yields without the complexity of managing crypto wallets or running validator nodes. Still, the proposed fees—well above 1%—have drawn criticism.
“It’s 2025. Expense ratios above 1% are relics of the past,” wrote @tonegurusf on X, reflecting broader pressure on ETF issuers to reduce costs.
Approval of the funds would mark the first U.S.-listed staking ETFs and the first Solana spot ETF—a major milestone for the asset class. But a denial or prolonged delay could undercut institutional confidence and weigh on ETH and SOL prices.
What’s Next?
The SEC has not issued a formal rejection, but its response raises significant hurdles for REX Shares and Osprey Funds. The firms may need to provide additional legal clarity on asset classification or restructure the funds to meet regulatory requirements.
As user @Plutopeio noted on X, “The SEC just got outmaneuvered—or so we thought. This could still be live within weeks, but the clock is ticking.”
With no clear resolution in sight, the fate of staking ETFs remains in flux—a bellwether for how U.S. regulators will handle the next wave of crypto-financial innovation.
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