SEC accepts ETF pledge application for 21Shares, Fox reporter: SEC is' very interested 'in pledge

SEC accepts pledge application for 21Shares ETF

The Cboe BZX exchange has submitted a 19b-4 filing to the US Securities and Exchange Commission (SEC) seeking permission for the 21Shares Core Ethereum ETF to participate in staking. The application was submitted on February 12th and the SEC officially accepted it yesterday. If the application is approved, the ETF will be able to pledge its holdings of Ethereum (ETH), allowing investors to receive staking rewards.

Obstacles to ETF participation in staking

The staking mechanism is the core of the Proof of Stake (PoS) consensus mechanism adopted by Ethereum, where participants need to lock ETH to verify network transactions and receive rewards.

In 2024, although the SEC approved multiple Ethereum ETFs, they were explicitly prohibited from participating in staking. The agency believes that pledging may violate federal securities laws and considers pledge services as unregistered securities issuances. Based on this position, the SEC has taken enforcement actions against Coinbase and Kraken in the past, accusing them of operating illegal staking schemes.

In order to reduce regulatory risks, Cboe proposed the use of a "Point and Click Staking" mechanism. Unlike the traditional staking model that requires transferring ETH to a third party, this method allows ETFs to directly stake their assets without moving them.

This model reduces the risk of asset theft, but still cannot completely avoid Slashing penalties, which result in the confiscation of some or all of the pledged ETH due to violations of network rules.

Cboe further explained that if the 21Shares Core Ethereum ETF does not participate in staking, it is equivalent to a stock type ETP giving up its dividend income from the underlying assets. The company believes that pledging ETH can not only improve investor returns, but also enhance ETF's ability to track Ethereum market performance and optimize the fund's creation and redemption process.

SEC is interested in token staking

Regarding this news, Fox Business reporter Eleanor Terrett revealed that the current SEC working group is quite interested in the "staking mechanism". Eleanor Terrett wrote:

According to a recent source who spoke with the US Securities and Exchange Commission (SEC), the agency is "very, very interested" in staking and has even requested a memorandum from the industry detailing different types of staking and their advantages

In addition, insiders have revealed that the SEC may issue guidance related to pledging in the near future, as it has become a topic of active concern for them.