Since early 2025, major US exchanges have submitted proposals to the Securities and Exchange Commission (SEC) to include staking functionality within existing spot Ethereum ETFs. If approved, these innovative funds could significantly accelerate cryptocurrency adoption by offering traditional investors a streamlined way to gain exposure to ETH while earning rewards through network participation.
Industry experts remain cautiously optimistic about approval prospects, noting that regulatory focus will center on robust investor protections before any green light is given. The addition of staking would mark a substantial evolution in crypto investment vehicles, potentially reshaping Ethereum's market position and institutional appeal.
The Push for Staked Ethereum ETFs
In February 2025, Cboe BZX Exchange and NYSE Arca took decisive steps toward Ethereum staking ETFs. Cboe BZX filed to amend the 21Shares ETF proposal, while NYSE Arca followed with a similar submission for Grayscale's ETF offerings just days later.
Staking serves as a fundamental component of Proof-of-Stake (PoS) blockchains like Ethereum. Unlike energy-intensive mining in Proof-of-Work networks, PoS systems select validators based on the amount of cryptocurrency they have "staked" or locked up. These validators verify transactions and add new blocks to the blockchain, earning rewards for their participation.
Approval of these innovative funds would enable traditional investors to gain cryptocurrency exposure while earning passive income through contributing to Ethereum network security. This development would represent another significant milestone in institutional crypto adoption.
"The approval of an Ethereum staking ETF would mark a watershed for institutional adoption," explained Brian Fabian Crain, CEO and Co-founder of Chorus One. "A staking-enabled ETF provides regulated, easy-to-access exposure to ETH that includes its native yield, all within the familiar ETF framework. This means asset managers and pensions could gain passive ETH exposure without handling private keys or navigating crypto exchanges, significantly lowering operational barriers."
This development could potentially enhance Ethereum's market position relative to other digital assets, particularly Bitcoin, by highlighting its unique yield-generating capabilities.
Could Staking Yield Revitalize Ethereum's Market Position?
Throughout 2024 and early 2025, Ethereum's price appreciation significantly lagged behind Bitcoin's performance. The ETH/BTC ratio reached record lows in early April 2025, indicating Bitcoin's relative outperformance amid fluctuating market conditions.
Ethereum's challenging price action, which saw it touch multi-year lows earlier this year, eroded some investor confidence. However, the growing support from exchanges and asset managers for Ethereum-staking ETFs could potentially reposition the cryptocurrency in the market.
"One key differentiator of Ethereum is its ability to generate yield through staking — something Bitcoin doesn't offer," Crain noted. "Enabling that feature within an ETF makes Ethereum-based products more attractive and competitive. Ethereum's ~3% annual staking yield is a major draw for investors and a clear distinction from Bitcoin. It means that even if ETH's price growth trails Bitcoin's, staked ETH can still deliver higher total returns thanks to the yield."
Approval of staking within an ETF structure would likely spur greater ETH demand while enhancing network security by expanding the validator pool and decentralizing staking across a broader range of holders. Increased total staked ETH would further strengthen the network against potential attacks.
As other jurisdictions already permit staking services, the United States might view early adoption as crucial for maintaining competitive advantage in the evolving digital asset landscape.
How International Developments Influence the SEC
Recent developments in Hong Kong have created additional context for the SEC's deliberations. Hong Kong's Securities and Futures Commission (SFC) announced new guidance allowing licensed crypto exchanges and funds to offer staking services, provided they meet strict regulatory conditions.
"The SFC's framework emphasizes investor protection while embracing innovation," Crain observed. "For example, Hong Kong requires that platforms retain full control of client assets (no outsourcing) and disclose all staking risks transparently."
Hong Kong's approach distinguishes itself from other jurisdictions like Singapore, which banned retail staking in 2023, and contrasts with the historically restrictive stance of the previous SEC administration under Gary Gensler.
This international development primarily exerts competitive pressure on the SEC to establish clear guidelines for US markets.
"As a major international financial hub, Hong Kong's adoption of regulated staking sends a message: it is possible to allow staking in a compliant manner," Crain explained. "US regulators often watch regimes like Hong Kong as bellwethers for emerging best practices. The SEC will take note that Hong Kong is not only allowing staking but even paving the way for staking services in ETFs."
The incorporation of staking into Hong Kong-listed crypto ETFs would put US funds and exchanges at a competitive disadvantage if the SEC maintains its prohibition. During application reviews, regulators may need to consider that global investors could turn to international markets to access these products if the US doesn't eventually approve them.
The Investment Contract Question
Among the most critical factors the SEC will consider is whether staking programs constitute investment contracts under US securities laws.
The previous SEC administration targeted centralized exchanges for operating staking services that were considered unregistered profit schemes violating securities regulations. In centralized models, users transfer cryptocurrency custody to third-party entities that manage staking and reward distribution.
However, this model differs significantly from the process inherent in Ethereum's decentralized blockchain structure.
"Unlike exchange staking programs, an ETF staking its own assets isn't 'selling' a staking service to others, it's directly participating in network consensus," Crain emphasized. "This nuance, highlighted in recent filings and comment letters, is contributing to the SEC's willingness to reconsider its stance. Essentially, the argument is that staking is a core technical feature of Ethereum, not an ancillary investment product."
While an ETF staking its assets presents a different model, the SEC will scrutinize potential securities violations closely. Addressing this concern requires demonstrating that protocol rewards originate inherently from the decentralized network rather than the sponsor's business efforts.
This largely conceptual issue remains critical, as SEC approval hinges on satisfying securities law requirements regarding staking mechanisms.
Understanding Slashing Risks
A fundamental difference from traditional commodity funds is that a staking ETF must actively participate in network consensus, exposing it to potential slashing penalties.
Slashing represents a protocol-level penalty where a portion of staked ETH can be destroyed if a validator acts improperly or makes technical mistakes. For investors, this means the ETF's principal could suffer partial losses due to operational errors—a risk not present in non-staking ETFs.
"The SEC will assess how significant this risk is and whether it's been mitigated," Crain stated. "Filings note that the Sponsor will not cover slashing losses on behalf of the trust, meaning investors bear that risk. This forces the SEC to consider if average investors can tolerate the possibility of losing funds not due to market movement but due to a technical protocol penalty. This risk must be transparently disclosed and managed in any approved product."
Typically, custodians maintain insurance for asset loss due to theft or cyberattacks. However, slashing constitutes a protocol-enforced penalty rather than traditional theft, and many custody insurance policies might not cover it. The SEC will likely inquire about specific safeguards should a slashing event occur.
This novel aspect of Ethereum staking creates unique challenges in accounting treatment and risk management that must be addressed to regulatory satisfaction.
Liquidity Considerations for Staked Assets
The SEC will carefully examine how staked ETH's lack of instant liquidity might impact ETF operations and investor protections.
Even after Ethereum's Shanghai upgrade enabled withdrawals in 2023, the protocol still incorporates delays and queues that prevent staked ETH from being instantly liquid upon initiating the unstaking process.
"The SEC will examine how the fund handles redemption requests if a large portion of assets are locked in staking," Crain explained. "For example, exiting a validator position can take from days to weeks if there's a backlog due to the network's exit queue and 'churn limit' on how many validators can unlock per epoch."
During heavy outflows, the fund might not immediately access all its ETH to meet redemption demands. The SEC views this as a structural complexity that could harm investors if not properly planned for and disclosed.
"In a worst-case scenario, if the ETF had to wait days or weeks to fully exit staking positions, an investor redeeming could either wait longer for their proceeds or get paid in-kind with staked ETH," Crain added. "This isn't a typical concern in ETFs and is a potential downside for investors expecting high liquidity."
Security and the "Point-and-Click" Model
Securing custody for Ethereum in an ETF is already crucial, and adding staking functionality will increase regulatory scrutiny of security arrangements.
"The SEC will examine how the ETF's custodian secures the ETH private keys, especially since those keys will be used to stake," Crain noted. "Normally, custodians use cold storage for crypto assets, but staking requires keys to be online in a validator. The challenge is to minimize exposure while still participating in staking."
Recognizing the vulnerability of keys during validator activation, the SEC will likely require custodians to implement cutting-edge security modules to prevent hacking incidents. Any prior security breaches involving a custodian would raise serious concerns during the approval process.
To mitigate these risks, some exchanges have proposed that ETH for staking remain within the custodian's control at all times through a "point-and-click" mechanism.
"NYSE Arca's proposal to allow the Grayscale Ethereum Trust to stake its Ether via a 'point-and-click' mechanism is a test case that will significantly inform the SEC's evaluation of staking in an ETF context," Crain explained. "The point-and-click staking model is essentially a way to stake without altering the fundamental custody or introducing extra complexities for investors. The coins don't leave the custody wallet, and the process is as straightforward as clicking a button."
This approach directly addresses SEC security concerns by emphasizing that ETH never leaves the custodian, thereby minimizing theft risk. Furthermore, it clarifies that yield is generated automatically by the network rather than through entrepreneurial efforts of third parties.
Frequently Asked Questions
What is an Ethereum staking ETF?
An Ethereum staking ETF would be an exchange-traded fund that holds Ethereum and participates in the network's proof-of-stake consensus mechanism. This allows investors to gain exposure to ETH price movements while earning staking rewards without directly managing validator operations or private keys.
How does staking in an ETF differ from traditional staking?
Traditional staking requires individuals to lock their own ETH and manage validator nodes or use third-party services. ETF staking would allow investors to benefit from staking rewards through a regulated investment vehicle without technical expertise or minimum stake requirements, though potentially with lower yields due to management fees.
What are the main risks of Ethereum staking ETFs?
Primary risks include slashing penalties for validator misbehavior, liquidity constraints due to lock-up periods, regulatory uncertainty, custodian security vulnerabilities, and potential underperformance relative to direct staking due to management fees. Investors would also bear traditional market risks associated with ETH price fluctuations.
Why is the SEC concerned about staking in ETFs?
The SEC is primarily concerned with whether staking constitutes an investment contract under securities laws, adequate investor protection against slashing events, proper disclosure of unique risks, custody security for online validation keys, and sufficient liquidity management for redemption requests.
How might staking ETFs affect Ethereum's ecosystem?
Approval of staking ETFs could significantly increase the amount of staked ETH, enhancing network security and decentralization. However, it might also lead to increased concentration among institutional validators and potentially reduce participation from individual stakers if ETF yields become more attractive than direct staking.
When might the SEC decide on staking Ethereum ETFs?
Most experts suggest a decision could come by late 2025, though the timeline remains uncertain. The approval process will depend on how effectively proposals address regulatory concerns, political developments, and potentially competitive pressure from international markets already offering similar products.
Path to Potential Approval
Despite the complexities surrounding staking in Ethereum ETFs, the current political climate in the United States could create a more favorable environment for eventual approval.
"On balance, it now seems more likely than not that the SEC will approve a staking feature for Ethereum ETFs in the relatively near future," Crain suggested. "A more receptive SEC leadership post-2025, strong political backing for staking in ETPs, and well-crafted proposals addressing earlier concerns — such as the point-and-click model — all tilt the odds toward approval. A year or two ago, the SEC was firmly opposed. Now, the conversation has shifted to 'how to do this safely,' which marks a significant change."
That said, regulatory approval will not come until the SEC is fully satisfied with investor protection mechanisms. The overall outlook remains cautiously optimistic, with the likelihood of eventual approval growing despite ongoing debates about timing.
In the most favorable scenario, an Ethereum staking ETF could gain regulatory approval by the end of 2025, potentially opening new avenues for institutional cryptocurrency participation. For those interested in tracking developments in this space, you can explore more strategies for monitoring regulatory changes and market impacts.
The evolution of cryptocurrency investment vehicles continues to advance, with staking ETFs representing the next potential frontier in blending traditional finance with innovative blockchain functionality. As regulatory frameworks develop and market structures mature, these products could significantly reshape how both institutional and retail investors access digital asset opportunities.