The U.S. Securities and Exchange Commission has raised significant legal questions about two cryptocurrency exchange-traded funds that were set to offer staking rewards for Ethereum and Solana, throwing cold water on what many saw as a pivotal moment for digital asset investment products.
TL;DR
- SEC staff sent a letter on May 30 questioning whether REX Financial and Osprey Funds’ ETH and SOL ETFs legally qualify as investment companies
- The funds had just received initial SEC registration approval, with plans to launch by mid-June 2025
- Concerns center on whether staking-linked crypto vehicles meet the legal definition required for ETF listing
- SEC Commissioner Caroline Crenshaw called the situation emblematic of the agency’s piecemeal crypto approach
- Bitcoin trades near $105,881 and Ethereum at $2,607 as the market digests the regulatory uncertainty
SEC Raises Red Flags Days After Green Light
In a letter dated May 30, SEC staff informed ETF Opportunities Trust — the legal entity issuing the REX and Osprey funds — that the two products may fail to meet the legal definition of an investment company, a designation required for funds to list on U.S. stock exchanges. The agency stated it was concerned that the funds “improperly filed their registration statement” and that “disclosures in the registration statement regarding the funds’ status as investment companies may be potentially misleading.”
The move came just hours after REX Financial announced it had received effective registration for both ETFs on May 30, clearing what appeared to be the final hurdle before listing. REX founder Greg King indicated the company was planning to launch both products by mid-June 2025.
Greg Collett, general counsel at REX Financial, pushed back on the SEC’s concerns. “We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that,” Collett stated.
The Staking Dilemma
The controversy centers on the inclusion of staking rewards in the ETF structure. Staking allows investors to earn passive income by pledging their crypto tokens to help operate the blockchain network. The REX-Osprey products were designed to offer this yield-generating feature within a traditional ETF wrapper — something no U.S. fund had previously accomplished.
The SEC’s objection appears to hinge on a technical distinction: whether a fund that generates yield through staking can still be classified as an investment company under federal securities law. The agency noted that crypto assets like memecoins and stablecoins have been deemed not to be securities under recent SEC guidance, creating a paradox when firms then seek to register products tied to those same assets.
SEC Commissioner Caroline Crenshaw, the commission’s lone Democrat and a consistent critic of the agency’s evolving crypto stance, seized on the contradiction. “How is it that these crypto assets are supposedly not securities when it comes to registration requirements, but conveniently are securities when a registrant sees an opportunity to sell a new product?” she wrote in a May 31 statement. “If you’re confused, join the club.”
A Broader Pattern of Regulatory Pushback
The SEC’s move marks the second time in recent months that the agency has publicly questioned a listed fund investing in alternative asset classes. In March 2025, the SEC rebuked an ETF by State Street and Apollo Global Management — the world’s first fund to invest in private credit — just hours after the product began trading.
Despite the setback, industry analysts remain optimistic about the long-term prospects for staking-enabled ETFs. Bloomberg Intelligence ETF analyst James Seyffart noted that “even if the SEC doesn’t allow this structure to list, we still believe the more straightforward attempts to allow staking in a U.S. ETF will ultimately be successful. It’s a matter of when, not if.”
The regulatory uncertainty has not rattled crypto markets significantly. Bitcoin continues to trade above $105,000, while Ethereum holds steady around $2,600, reflecting investor confidence that broader regulatory frameworks — including the advancing GENIUS Act for stablecoins and ongoing ETF approvals — remain on track.
What Comes Next
The SEC has warned that “to the extent that these concerns remain unresolved, the commission staff will consider the appropriate next steps to ensure compliance with the federal securities laws.” That language suggests the agency could pursue enforcement action or require the funds to withdraw and refile their registrations.
For the crypto industry, the episode underscores a central tension in 2025’s regulatory landscape: the SEC is simultaneously opening doors to crypto products while maintaining strict scrutiny over how those products are structured. Issuers hoping to offer innovative features like staking rewards will need to navigate increasingly complex legal terrain before reaching the market.
Why This Matters
The SEC’s challenge to staking ETFs represents one of the most consequential regulatory moments for crypto investment products in 2025. Staking rewards are a fundamental feature of proof-of-stake blockchains like Ethereum and Solana, and the ability to offer them in a regulated ETF wrapper could attract billions in institutional capital. The outcome of this regulatory standoff will set a precedent for how the SEC classifies and approves crypto-based financial instruments, making it a critical watchpoint for investors, issuers, and policymakers alike.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
SEC approves registration then questions whether it qualifies as an investment company. thats like letting someone buy a house then telling them they cant move in because you forgot to check the zoning
Eline D. the house zoning analogy is perfect. SEC approved the registration then questioned the fundamental structure. you dont let someone build the house and then rezone the neighborhood
BTC at 105K while these ETFs are stuck in regulatory limbo. every day without staking yield is millions in foregone revenue for ETH holders. SEC knows this and seems to enjoy it
The ETF is absorbing more BTC than miners produce daily
BTC at 105K and ETH at 2607 while the SEC plays ping pong with staking ETF approvals. the market is digesting regulatory uncertainty in real time
lisa chen SEC playing ping pong with staking ETFs while BTC holds 105K. market has learned to price in regulatory noise
Jin H. the staking yield is exactly why these got flagged. Without it they are just spot wrappers. With it they look like unregistered investment companies to the SEC. The yield is the whole value prop.
yield_hawk_ strip the staking yield out and these ETFs are just spot wrappers with extra fees. SEC knows exactly what theyre doing
share_class_ strip the staking yield and these ETFs are just spot wrappers with extra fees. SEC targeting the yield specifically shows they understand the value prop and want to kill it
yield_strip_ stripping the staking yield kills the entire thesis. without yield these are just expensive spot wrappers with an SEC stamp
yield_hawk_ the staking yield is the entire value prop of these ETFs. strip it out and they are just spot wrappers with higher fees. SEC knows this which is why they targeted it
ETF flows are the strongest buy signal we’ve ever had
SEC green lights the registration then immediately raises concerns about whether they qualify as investment companies. classic SEC two step
etf_delay_ approve then immediately question the approval. the SEC two step is the most predictable regulatory dance in finance
BlackRock entering crypto legitimizes the entire asset class
Crenshaw calling the SEC approach piecemeal is rich given she has voted against every crypto product put in front of her. The real question is whether the SEC forces issuers to strip staking yield entirely to get approval.
Marcus B. the irony of Crenshaw calling things piecemeal while being the biggest piece of the problem. she has never met a crypto product she didnt want to block
filibuster_btc Crenshaw voting against every crypto product then calling the approach piecemeal is peak regulatory irony. the piecemeal problem is her voting record
Marcus B. crenshaw voted against every single crypto product and now calls the approach piecemeal. you cant make this up
Crenshaw calling the approach piecemeal while voting against every crypto product ever put in front of her. the irony is completely lost on her office
SEC approving the registration then questioning if it qualifies as an investment company is like letting someone buy a house then rezoning the neighborhood. unreal
Marek D. the two step is deliberate. approve so you look progressive then kill it with legal technicalities so you dont look anti innovation. DC playbook
the two step from SEC is textbook. approve the registration to look forward thinking, then kill it with investment company act technicalities. Gensler special