Since early 2025, exchanges such as Cboe BZX and NYSE Arca have submitted proposals to the US SEC to incorporate staking services into existing spot ETFs. If approved, these funds could accelerate crypto adoption by giving traditional investors streamlined access to ETH.

Brian Fabian Crain, CEO and Co-founder of Chorus One, told BeInCrypto he remains “cautiously optimistic” about the proposals gaining approval before the end of President Trump’s first term. Still, he emphasized that the SEC will likely focus on ensuring strict investor protections before moving forward.

The Push for Staked Ethereum ETFs in the US

In mid-February, both Cboe BZX Exchange and NYSE Arca took steps towards Ethereum staking ETFs. Cboe BZX filed to amend the 21Shares ETF, while NYSE Arca followed two days later with a similar proposal for Grayscale’s ETF offerings.

Staking is a fundamental component of Proof-of-Stake (PoS) blockchains. Instead of relying on energy-intensive mining, such as in Proof-of-Work blockchains like Bitcoin, PoS networks select participants. 

These participants act as validators and are in charge of verifying and adding new transactions, or blocks, to the blockchain based on the amount of cryptocurrency they have “staked” or locked up.   

If approved, these Ethereum ETFs would allow traditional investors to gain exposure to the cryptocurrency while also earning passive income by contributing to the security of the Ethereum network through staking.

This move would also represent another significant step forward for institutional crypto adoption.

“The‬‭ approval‬‭ of‬‭ an‬‭ Ethereum‬‭ staking‬‭ ETF‬‭ would‬‭ mark‬‭ a‬‭ watershed‬‭ for‬‭ institutional‬‭ adoption.‬‭ Indeed,‬‭ a‬‭ staking-enabled‬‭ ETF‬‭ provides‬‭ a‬‭ 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,” Crain told BeInCrypto. 

It would also enhance Ethereum’s market position relative to other crypto assets.

Can Staking Yield Revitalize Ethereum’s Market Position?

Throughout much of 2024 and early 2025, Ethereum’s price appreciation lagged significantly behind Bitcoin. The ETH/BTC ratio hit a record low in early April 2025, indicating that Bitcoin was outperforming Ethereum.

Fluctuations in the broader crypto market further complicated Ethereum’s market position. Earlier this month, the network reached its lowest price in two years, eroding investor confidence. 

With increasing support from exchanges and asset managers for an Ethereum-staking ETF, a development of this scale can potentially reposition Ethereum.

“One key differentiator of Ethereum is its ability to generate yield through staking — something Bitcoin doesn’t offer. 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. By packaging this yield into an ETF, Ethereum becomes a more compelling investment option for institutions focused on income,” Crain explained.

Allowing staking within an ETF structure would spur greater ETH demand and investor appetite and enhance Ethereum’s security by expanding the validator pool and decentralizing staking across a wider range of holders.

Increased total staked ETH would further strengthen the network against attacks.

With other jurisdictions already legally permitting staking services, the United States might see their early adoption as a reason to act quickly and maintain a competitive edge.

How Hong Kong’s Staking Approval Impacts the US SEC

This week, Hong Kong’s Securities and Futures Commission (SFC) announced new guidance allowing licensed crypto exchanges and funds in the city to offer staking services. Platforms must meet strict conditions before providing these services.

“‭The‬‭ SFC’s‬‭ framework‬‭ emphasizes‬‭ investor‬ protection‬‭ while‬‭ embracing‬‭ innovation.‬‭ For‬‭ example,‬‭ Hong‬‭ Kong‬‭ requires‬‭ that‬‭ platforms‬‭ retain‬‭ full control of client assets (no outsourcing) and disclose all staking risks transparently,” Crain explained.

Hong Kong set itself apart from other jurisdictions like Singapore, which banned retail staking in 2023, and the previous SEC’s administration on Gary Gensler, which took a historically restrictive approach.

Crain believes this new development will primarily exert competitive pressure on the SEC to follow accordingly. 

“‬‭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.‬‭ 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 SFC’s‬‭ rules‬ mention authorized virtual asset funds can offer staking under certain caps and conditions),” he said.

‭Incorporating staking into Hong Kong-listed crypto ETFs would put US funds and exchanges at a competitive disadvantage if the SEC maintains its prohibition. 

When reviewing the 21Shares and Grayscale applications, the SEC may need to consider that global investors could turn to international markets to access these staking ETF products if the US doesn’t eventually allow them.

While the competitive aspect is a factor, the SEC will also need to address various complexities inherent in Ethereum staking, which may be obstacles to final approval.

The “Investment Contract” Conundrum

Among the most important factors the SEC will consider is whether staking programs constitute investment contracts. 

The previous administration’s SEC targeted centralized exchanges like Kraken and Coinbase for operating staking services considered unregistered profit schemes and violating US securities laws. 

In centralized exchanges, users must effectively transfer custody of their cryptocurrency to a third-party entity that manages staking and the distribution of rewards. However, this model is distinct from the process inherent in Ethereum, a decentralized blockchain.

“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.‬ This‬‭ nuance,‬‭ emphasized‬‭ 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,” Crain told BeInCrypto.

While an ETF staking its assets presents a different model, the SEC will look closely for security violations. Addressing this concern requires demonstrating that protocol rewards originate inherently from the decentralized network, not the sponsor’s business efforts.

This issue, though largely conceptual, is critical; SEC approval hinges on satisfying securities law requirements regarding staking.

Meanwhile, slashing risks are another issue of concern.

Slashing Risks: A Unique Challenge for Ethereum Staking ETFs?

A key difference from traditional commodity funds is that a staking ETF must actively participate in network consensus, exposing it to the potential for slashing.

Slashing is a penalty where a portion of the staked ETH can be destroyed if a validator acts improperly or makes mistakes. For investors, 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.‬‭ 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,” Crain explained. 

Typically, custodians have insurance for asset loss due to theft or cyberattacks. However, slashing is a protocol-enforced penalty, not traditional “theft,” and many custody insurance policies might not cover it. Therefore, the SEC will likely inquire about the safeguards should a slashing event occur.

This novel aspect of Ethereum staking creates certain ambiguities in accounting treatment.

“The‬‭ SEC‬‭ will‬‭ scrutinize‬‭ how‬‭ the‬‭ custodian‬‭ reports‬‭ on‬‭ staked‬‭ holdings.‬‭ The‬‭ ETF’s‬‭ [net asset value‭ accounting‬‭ needs‬‭ to‬‭ capture‬‭ both‬‭ the‬‭ base‬‭ ETH‬‭ and‬‭ the‬‭ accumulated‬‭ rewards.‬‭ Custodians‬‭ will likely‬‭ provide‬‭ reporting‬‭ on‬‭ how‬‭ much‬‭ ETH‬‭ is‬‭ staked‬‭ versus‬‭ liquid,‬‭ and‬‭ any‬‭ rewards‬‭ received.‬‭ The‬‭ SEC‬‭ will‬‭ require‬‭ independent‬‭ audits‬‭ or‬‭ attestations‬‭ confirming‬‭ that‬‭ the‬‭ custodian‬‭ indeed‬‭ holds‬‭ the‬‭ ETH‬‭ it‬‭ claims‬‭ (both‬‭ original‬‭ and‬‭ any‬‭ newly‬‭ awarded‬‭ ETH)‬‭ and‬‭ that‬‭ controls‬‭ around‬‭ staking are effective,” Crain explained.

Liquidity risks associated with Ethereum staking are another factor to consider.

Further SEC Considerations

A key detail the SEC will examine is that staked ETH lacks instant liquidity. 

Even after the Shanghai upgrade enabled withdrawals in 2023, the Ethereum 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.‬‭ 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),” Chain told BeInCrypto. 

During heavy outflows,‬‭ the‬‭ fund‬‭ might‬‭ not‬‭ immediately‬‭ access‬‭ all‬‭ its‬‭ ETH‬‭ to‬‭ meet‬‭ redemptions.‬‭ The‬‭ SEC‬‭ sees‬‭ this‬‭ as‬‭ a‬‭ structural‬‭ complexity that could harm investors if not planned for.‬

“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 (which‬‭ they‬‭ then‬‭ must‬‭ figure‬‭ out‬‭ how‬‭ to‬‭ redeem‬‭ themselves).‬‭ This‬‭ isn’t‬‭ a‬‭ typical‬‭ concern‬‭ in‬‭ ETFs‬‭ and‬‭ is‬‭ a‬‭ potential‬‭ downside‬‭ for‬‭ investors‬‭ expecting high liquidity,” Crain added. 

Finally, there are also security risks that must be addressed responsibly.  

The “Point-and-Click” Model

Securing custody for Ethereum in an ETF is already crucial, and adding staking will increase the SEC’s scrutiny.

“‬The‬‭ SEC‬‭ will‬‭ examine‬‭ how‬‭ the‬‭ ETF’s‬‭ custodian‬‭ secures‬‭ the‬‭ ETH‬‭ private‬‭ keys,‬‭ especially‬‭ since‬‭ those‬‭ keys‬‭ (or‬‭ derivative‬‭ keys)‬‭ will‬‭ be‬‭ used‬‭ to‬‭ stake.‬‭ 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,” Crain said. 

Recognizing the vulnerability of keys during validator activation, the SEC will most likely require custodians to use cutting-edge security modules to prevent hacking. Any prior incidents of security breaches involving a custodian would raise serious concerns.

Aiming to lessen these risks, some exchanges have proposed that the ETH for staking remain within the custodian’s control at all times. This model is largely referred to as a “point-and-click” mechanism.

“NYSE‬‭ Arca’s‬‭ proposal‬‭ to‬‭ allow‬‭ the‬‭ Grayscale‬‭ Ethereum‬‭ Trust‬‭ (and‬‭ a‬‭ smaller‬‭ ‘Mini’‬‭ 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.‬‭ The‬‭ point-and-click‬‭ staking‬‭ model‬‭ is‬‭ essentially‬‭ a‬‭ way‬‭ to‬‭ stake‬‭ without‬‭ altering‬‭ the‬‭ fundamental‬‭ custody‬‭ or‬‭ introducing‬‭ extra‬‭ complexities‬‭ for‬‭ investors.‬‭ In‬‭ practice,‬‭ this‬‭ means‬‭ the‬‭ trust’s‬‭ custodian‬‭ would‬‭ simply‬‭ enable‬‭ staking‬‭ on‬‭ the‬‭ held‬‭ ETH‬‭ through‬‭ an‬‭ interface.‬‭ The‬‭ coins‬‭ don’t‬‭ leave‬‭ the‬‭ custody‬‭ wallet,‬‭ and‬‭ the‬‭ process‬‭ is‬‭ as‬‭ straightforward as clicking a button,” Crain explained. 

The proposal directly tackles the SEC’s security worries by emphasizing that the ETH never leaves the custodian, thereby minimizing the theft risk. Furthermore, it clarifies that the yield is generated automatically by the network, not through the entrepreneurial endeavors of a third party.

When Will the SEC Approve Staking in Ethereum ETFs?

Despite the complexities and technical details of staking in Ethereum ETFs, the prevailing political climate in the US could lead to a more favorable environment for their 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. 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,” Crain told BeInCrypto.

That said, Crain cautioned that the SEC will not approve an ETF of this kind until it’s fully satisfied with the investor protections in place. Even so, the overall outlook remains positive.

“‬‭Considering‬‭ all‬‭ the‬‭ factors‬‭ discussed,‬‭ the‬‭ outlook‬‭ for‬‭ an‬‭ Ethereum‬‭ staking‬‭ ETF‬‭ approval‬‭ appears‬‭ cautiously‬‭ optimistic.‬‭ The‬‭ likelihood‬‭ of‬‭ eventual‬‭ approval‬‭ is‬‭ growing,‬‭ though‬‭ the‬‭ timing‬‭ remains a subject of debate,” Crain concluded. 

In the best-case scenario, an Ethereum staking ETF could gain approval by the end of 2025.