SEC Acknowledges Grayscale’s Revised Staking Proposal for Its Ethereum ETF

The Securities and Exchange Commission (SEC) has accepted and published the NYSE Arca filing on Tuesday, with a document detailing the proposal that aims to allow Grayscale’s Ethereum ETFs to earn staking rewards.

The rule change, submitted on February 14 and published by the SEC on February 25, would enable the Grayscale Ethereum Trust ETF and the Grayscale Ethereum Mini Trust ETF to participate in Ethereum’s proof-of-stake system while retaining existing custodial protections.

– The sponsor may, from time to time, invest a portion of the fund’s Ethereum on behalf of the fund through one or more trusted staking providers – the filing states, noting that these providers could include the current custodian or its affiliates, but would not include Grayscale’s affiliates.

For Ethereum products, staking involves a process where users lock up their Ethereum to become co-validating participants, thereby helping to secure the network and earning some Ethereum as a reward.

The filing distinguishes Grayscale’s approach from ‘delegated staking’ services that have faced regulatory challenges in the past.

The digital asset management firm has submitted multiple applications for crypto ETFs this year, including proposals for XRP, Cardano, and Polkadot, as it seeks to expand its portfolio beyond Bitcoin and Ethereum.

Changing aspirations for a new regime under President Donald Trump are paving the way for issuers to submit new applications, betting on a more favorable regulatory environment under potentially renewed SEC leadership.

With Grayscale’s latest proposal, the ETFs would stake Ethereum through trusted service providers and earn rewards in the form of additional Ethereum. These additional funds would be considered income for the fund.

However, the staking process itself would be conducted solely by Grayscale, without partnering with other entities such as validators.

Grayscale would also not be allowed to market its staking services.

The proposal also specifies that any staked Ethereum managed will remain under custodial control, addressing security concerns that previously complicated regulatory approval for such activities.

If approved, the change would help Grayscale ETFs more effectively track returns associated with holding Ethereum, as staking has become an integral feature of Ethereum since its transition to proof-of-stake in 2022.

The SEC will have 45 days to approve, deny, or extend the review of the proposal, unless it designates a longer period for consideration when the application arrives in the register.