Will the SEC Approve Ethereum Staking ETFs? What’s at Stake for Crypto and Investors

As Ethereum continues to mature and seek wider institutional acceptance, a pivotal question looms over the crypto industry in the U.S.: Will the Securities and Exchange Commission (SEC) approve staking in spot Ethereum ETFs?

Since early 2025, major exchanges like Cboe BZX and NYSE Arca have submitted proposals to integrate staking features into existing Ethereum exchange-traded funds. If granted, this move could open the doors to passive income opportunities for traditional investors while reinforcing Ethereum’s network security—ushering in a potential new era of crypto investment.

The Push for Staked Ethereum ETFs

In February, Cboe BZX moved to amend the 21Shares Ethereum ETF to include staking functionality. Shortly after, NYSE Arca followed suit with a similar proposal for Grayscale’s Ethereum fund. These filings aim to allow ETF providers to stake a portion of held ETH, generating rewards directly from Ethereum’s Proof-of-Stake (PoS) consensus mechanism.

Unlike Bitcoin’s energy-intensive Proof-of-Work model, Ethereum’s PoS allows validators to secure the network and process transactions by locking up ETH as collateral. If staking is allowed within an ETF structure, it would mean investors could benefit from Ethereum’s native ~3% yield—without having to manage private keys or interact with crypto exchanges directly.

According to Brian Fabian Crain, CEO of blockchain infrastructure firm Chorus One, the introduction of staking into ETFs could be a "watershed" moment. “It allows institutional investors access to ETH's yield in a familiar format,” he told BeInCrypto. “That ease of use is a huge incentive.”

Ethereum’s Yield Advantage

Throughout 2024 and into early 2025, Ethereum has struggled to keep pace with Bitcoin. The ETH/BTC ratio reached historic lows in April, sparking debates over Ethereum’s long-term value proposition. However, the prospect of embedding staking yields into regulated financial products could offer a unique advantage.

Crain points out that Ethereum's ability to generate yield differentiates it from Bitcoin. “Even if ETH price appreciation lags behind, staked ETH may still offer stronger overall returns thanks to passive income,” he noted. This feature could position Ethereum as an income-generating digital asset—a critical factor for yield-seeking institutions like pensions and mutual funds.

The Global Race: Hong Kong Sets a Precedent

While the SEC remains undecided, other jurisdictions are already moving forward. This week, Hong Kong’s Securities and Futures Commission (SFC) released a regulatory framework allowing licensed crypto platforms to offer staking services. The SFC’s guidelines prioritize transparency and investor protection, including a requirement that platforms retain full control of client assets.

Crain emphasized that this development may increase pressure on U.S. regulators. “The SFC shows it’s possible to permit staking compliantly,” he said. With jurisdictions like Hong Kong paving the way, the U.S. risks falling behind if the SEC maintains its conservative stance.

Legal Hurdles: Is Staking an Investment Contract?

One of the SEC’s primary considerations is whether staking, especially in an ETF context, constitutes an “investment contract” under U.S. securities law. The SEC under previous leadership had taken action against centralized staking services on platforms like Kraken and Coinbase, arguing that these offerings were unregistered securities.

However, proponents argue that staking in an ETF context is fundamentally different. Rather than offering a service to outside investors, the fund would be staking its own assets directly with the Ethereum protocol.

"This is a core technical feature of Ethereum, not an investment product," said Crain. This distinction could be central to the SEC’s ultimate decision, as the agency considers whether staking rewards come from network participation rather than the managerial efforts of a third party.

Operational Risks: The Slashing Factor

Another unique challenge for staking-enabled ETFs is the risk of slashing—a penalty that occurs if a validator behaves maliciously or makes an error, resulting in a loss of part of the staked ETH.

ETF filings acknowledge this risk and clarify that sponsors will not reimburse investors for losses caused by slashing. This introduces an unfamiliar type of risk into the ETF landscape, one the SEC will need to weigh carefully.

What’s Next?

As the SEC reviews proposals from 21Shares and Grayscale, it must navigate a complex matrix of legal, technical, and geopolitical considerations. From slashing penalties to the classification of staking under securities law, the path to approval is not straightforward.

However, the potential payoff is significant. A green light for staking in ETFs could boost Ethereum’s competitiveness, unlock new revenue streams for investors, and reinforce the legitimacy of crypto as a mainstream asset class. Conversely, continued delays could push institutional interest toward more progressive jurisdictions.

While approval may not be imminent, industry voices remain cautiously optimistic that the SEC could act before the end of President Trump’s current term. Should it happen, it may not only reshape Ethereum’s trajectory but redefine the contours of institutional crypto adoption for years to come.