Key Takeaways
- The SEC’s Crypto Task Force discussed staking approaches for crypto ETPs with Jito Labs and Multicoin Capital.
- Two models proposed for staking in ETPs aim to enhance investor returns and network security.
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The SEC’s Crypto Task Force, led by Commissioner Hester Peirce, met with representatives from Jito Labs and Multicoin Capital Management on February 5 to discuss the possibility of including staking as a feature in crypto exchange-traded products (ETPs), according to a memo released by the SEC.
Staking is the process of participating in the operation of a Proof-of-Stake (PoS) blockchain network by locking up cryptocurrency to validate transactions and secure the network. Participants earn rewards for their contributions.
Lucas Bruder, CEO, and Rebecca Rettig, Chief Legal Officer of Jito Labs, joined Multicoin Capital’s Managing Partner Kyle Samani and General Counsel Greg Xethalis to present two proposed models for implementing staking in crypto ETPs.
The first proposal, called the Services Model, would allow ETPs to stake a portion of their native assets through validator service providers while maintaining timely redemptions. The second approach, the LST Model, would involve ETPs holding liquid staking tokens that represent staked versions of native assets.
“Staking is an essential part of any PoS/dPoS blockchain and is an inherent feature of any native token of such a network,” the firms stated in their presentation document.
The meeting addressed previous concerns that led to the removal of staking features from earlier ETP applications, including redemption timing, tax implications for grantor trusts, and the classification of staking services as securities transactions.
Jito Labs and Multicoin Capital are advocating for the SEC to allow staking in crypto asset ETPs. The firms argued that restricting staking in crypto ETPs “harms investors, by crippling the productivity of the underlying asset and depriving investors of potential returns, and network security, by preventing a significant portion of an asset’s circulating supply from being staked.”
The CBOE BZX Exchange recently submitted a Form 19b-4 to the SEC, proposing to enable staking within the 21Shares Core Ethereum ETF. This marks the first time such a request has been formally made for an ETF following the SEC approval of spot Ethereum ETFs last year.
Previously, 21Shares and ARK Invest tried to launch a staked Ethereum ETF, but they ultimately dropped the staking feature from their application. ARK Invest later abandoned its Ethereum ETF plan, leaving 21Shares to proceed with the 21Shares Core Ethereum ETF.
Other companies pursuing spot Ethereum ETFs also initially included staking but later revised their proposals, opting for cash creation and redemption processes.
The SEC’s Crypto Task Force also held meeting with other industry leaders, including representatives from the Blockchain Association and Nasdaq, to discuss approaches to addressing issues related to crypto assets regulation.
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