Staking is a relatively safe way to earn yield on crypto holdings.
Nowhere is the Trump administration’s pro-crypto stance more apparent than at the Securities and Exchange Commission (SEC). The organization shook off its crypto caution and appears fully on board. It’s dropped cases against crypto exchanges and looks set to approve a slew of crypto ETFs.
But before the SEC can go to the crypto moon, it still has some issues to resolve. One of those issues centers around staking. The SEC recently announced that paying staking rewards doesn’t make a crypto into a security. However, it’s been more circumspect on approving staking ETFs — though that may change very soon.
Staking is a way that proof-of-stake cryptos like Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL) reward network participants for contributing to network security. To qualify, holders need to tie up their tokens, through solo staking, delegated staking, or on a centralized exchange. At time of writing (June 16), Coinbase pays around 2% annual percentage yield (APY) on Ethereum staking, and Solana pays 5% APY. That makes it an attractive — and relatively low-risk — proposition for investors.
Staking is different from crypto lend-earn schemes, such as those offered by the now-defunct Celsius and Voyager Digital. These generate yield by lending out your assets, and carry a lot more risk. In contrast, staking is baked into the individual blockchains.
It was still a bone of contention for the old SEC, which brought charges against crypto exchanges like Kraken for offering staking services in 2023. The new SEC is taking a different approach. At the end of May, it announced that most staked cryptos and staking services are not securities. For U.S. investors, this paves the way for crypto holdings to generate returns.
The SEC is still hesitating on approving staking ETFs. There’s concern over potential financial and security risks. Plus, ETFs need to qualify as investment companies, which means being in the business of securities — and the SEC has just said that staked cryptos are not securities. It is a difficult circle to square. That’s why the existing Ethereum ETFs do not give staking benefits.
At the end of May, the SEC wrote to ETF Opportunities Trust, the company behind the Ethereum and Solana ETFs that would have been the first to offer staking rewards. It raised several unresolved issues, one of which was whether the funds would meet the definition of an investment company.
