SEC clarifies proof-of-stake isn’t ‘security’ – Road clear for spot ETH ETF staking? 

• SEC clarification cleared a key legal obstacle for U.S. spot ETH ETF staking.
• ETF investors’ losses increased above 20% as ETH struggled to reclaim $3K. 

The U.S. Securities and Exchange Commission (SEC), Division of Corporation Finance, clarified that some staking activities are not security transactions. 

Commenting on the directive, Commissioner Hester Pierce acknowledged it as a ‘welcome clarity’ for firms offering staking services. 

“Today’s statement provides welcome clarity for stakers and “staking-as-a-service” providers in the United States. The Division’s statement is applicable to persons who self-stake certain covered crypto assets on a proof-of-stake or delegated proof-of-stake network.”

Is ETH ETF staking approval likely?

This meant that PoS systems like Ethereum [ETH], Solana [SOL], Cardano, and others are non-securities.

Besides, the guidance applied to self and custodial (delegated) staking, including liquid staking, according to Rebecca Rettig, Jito Labs’ legal officer. 

“This bodes very well for other types of non-custodial staking activity, including liquid staking.”

Compared to the Biden-era regime, this was a massive shift.  The Biden-era SEC fined Kraken exchange $30M, claiming that its staking service constituted unregistered security offerings.

Now, under the new Trump-era SEC, offering such service doesn’t need registration with the agency. 

This followed a similar update on PoW (proof-of-work) or mining-based blockchains like Bitcoin. Put differently, both PoW and PoS arrangements aren’t securities offerings.

This begs the question: Will the agency greenlight the much-sought U.S. spot ETH ETF staking? ETF Store’s Nate Geraci noted that the only remaining hurdle was the IRS tax clarification. 

“Another hurdle cleared for staking in spot ETH ETFs. Now need clarity from IRS on how staking revenue handled in grantor trust (which is the structure used for spot ETH ETFs).”

In Q2, ETH staking saw renewed interest, growing from 33M ETH to over 34M ETH, with an average annualized return of 3%.

If approved, ETF buyers could enjoy these staking rewards without worrying about the complicated ways of staking individual ETH or the risks involved. 

So, staking rewards could improve demand for products apart from relying on price appreciation alone. In fact, most ETH ETF holders were underwater, according to Glassnode. 

“The average investor in the BlackRock and Fidelity Ethereum ETFs are now substantially underwater on their position, holding an unrealized loss of approximately -21% on average.”

Source: Glassnode

That said, the positive news didn’t stir the ETH price. In fact, the altcoin’s spot market demand declined further, as shown by the downward movement on the spot CVD (Cumulative Volume Delta).  

But, the Open Interest (OI) remained elevated, suggesting high speculative interest and market leverage.

Source: Coinalyze

Unless ETH’s pot market demand improves, the high leverage could complicate the rally and heighten liquidation risks. 

At press time, the altcoin was valued at $2.62K and has been consolidating between $2.3K and $2.7K in May.