Cboe BZX Exchange Pushes For Ethereum ETF Staking In New SEC Filing – Details

According to a February 12 filing with the US Securities and Exchange Commission (SEC), the Cboe BZX Exchange has submitted a request seeking approval for staking within the 21Shares Ethereum (ETH) exchange-traded fund (ETF).

Cboe Seeks Ethereum ETF Staking Approval

The Cboe BZX Exchange has filed with the SEC to allow ETH held in the 21Shares Core Ethereum ETF to be staked. If approved, the ETF will be able to stake its ETH holdings, enabling investors to earn staking rewards on their Ethereum holdings.

For the uninitiated, staking is one of the cornerstones of the Ethereum protocol. The blockchain transitioned from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) system in September 2022. Under the PoS model, network participants can stake their ETH to validate transactions and earn rewards in return.

While the SEC approved its first Ethereum ETF in 2024, it explicitly prohibited staking at the time, citing potential violations of federal securities laws. This restriction led major cryptocurrency exchanges such as Coinbase and Kraken to discontinue their staking services for US customers.

However, the SEC’s stance may be shifting following Donald Trump’s victory in the 2024 US presidential election. The agency now has new leadership, reportedly consisting of more pro-crypto officials. 

This is in stark contrast to the previous administration under former SEC Chair Gary Gensler. The new leadership change likely encouraged the Cboe BZX Exchange to submit its request for Ethereum ETF staking services.

In its application, the Cboe BZX Exchange has proposed using a “point-and-click” staking mechanism. This staking method differs from the more traditional ones in that it does not require ETH to be moved to third parties for staking. Rather, it enables the ETF to stake its ETH holdings directly from its custody wallet.

While the point-and-click staking mechanism reduces the likelihood of any security compromise or breach, it does not completely remove potential slashing penalties. To elaborate, slashing penalties are imposed on validators who violate network rules, leading to partial or complete forfeiture of their staked ETH.

To strengthen its case, the Cboe BZX Exchange argued that prohibiting staking for the 21Shares Ethereum ETF is akin to preventing an equity ETF from distributing dividends to its investors. The firm contends that staking rewards should be treated similarly to dividends, as they represent an additional yield generated from holding the asset.

ETH Price Reacts To Staking News

Following the Cboe BZX Exchange’s filing with the SEC, ETH experienced a sharp price increase. The second-largest cryptocurrency by market capitalization surged from $2,547 to a high of $2,795 before stabilizing.

Similarly, ETH staking-related tokens, such as Lido (LDO), experienced a notable price rally. LDO surged from $1.46 to a peak of $1.84 before retracing to its current price of $1.66 at the time of writing. At press time, ETH trades at $2,633, up 2.3% in the past 24 hours.

Featured Image from Unsplash.com, Charts from Cboe and TradingView.com