SEC Flags Legal Concerns Over Ethereum and Solana Staking ETFs Just Days After Registration Approval

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.