SEC Reviews REX Shares and Osprey Funds Staking ETFs

TLDR

• SEC examines REX Shares and Osprey Funds for staking ETFs.
• ETFs use C-corporation structure to bypass traditional SEC approval.
• Staking functionality is crucial for traditional market integration.

The U.S. Securities and Exchange Commission (SEC) is scrutinizing REX Shares and Osprey Funds over their recent filing for Ethereum (ETH) and Solana (SOL) staking exchange-traded funds (ETFs). The SEC's concerns focus on the regulatory and disclosure aspects of these innovative cryptocurrency investment products.

REX Shares, in collaboration with Osprey Funds, has filed for two staking ETFs: the REX-Osprey ETH + Staking ETF (ticker: ESK) and the REX-Osprey SOL + Staking ETF (ticker: SSK). Both ETFs are anticipated to list on Nasdaq soon, following final logistical steps.

Unique Structure and Regulatory Bypass

The ETFs employ a distinctive structure as C-corporations. This rare designation in the ETF world helps bypass traditional SEC approval processes. The setup includes Cayman Islands subsidiaries that execute staking operations. This approach allows the funds to avoid the extended 19b-4 approval timeline often required for crypto ETFs.

The filing was submitted under Rule 485(b) of the Investment Company Act of 1940, allowing the prospectus to become effective immediately. This regulatory strategy has prompted the SEC's attention, suggesting potential additional scrutiny before official launches can occur.

Anticipation for Staking Components

The staking component has been highly anticipated for spot Ether ETFs since their inception in July 2024. Industry executives suggest that these investment products may seem incomplete without staking functionality. Such additions represent a new dimension of cryptocurrency investments in traditional markets.

In contrast, the SEC delayed its decision regarding Bitwise's application to add staking to its Ether ETF, signifying the complexity and caution surrounding regulatory approvals in this area. The delay was announced on May 21, 2025, reflecting ongoing regulatory challenges in the cryptocurrency sector.

Tax Implications and Operational Strategy

The C-corporation structure of these ETFs introduces some tax inefficiency due to corporate income tax obligations. These obligations will be reflected in the funds' Net Asset Value (NAV). However, the use of Cayman Islands subsidiaries for staking operations seems strategically positioned to sidestep U.S. restrictions on grantor trust ETFs engaging directly in staking.

This strategic bypass is designed to enable staking operations while maintaining regulatory compliance. Nonetheless, the SEC's current scrutiny signifies potential hurdles in launching these products without further regulatory adjustments.