The U.S. Securities and Exchange Commission (SEC) has raised significant concerns about REX Financial and Osprey Funds’ proposed Ethereum (ETH) and Solana (SOL) staking exchange-traded funds (ETFs), potentially halting their launch. In a letter sent to ETF Opportunities Trust on May 30, the SEC argued that the funds’ structure may not qualify as an investment company under the Investment Company Act of 1940, casting doubt on their eligibility to trade on U.S. exchanges. The agency also suggested that the funds’ disclosures could mislead investors by treating staking activities as akin to securities trading.
REX Shares and Osprey Funds filed prospectuses on May 30 to launch what would be the first U.S. ETFs to hold and stake Ethereum and Solana, with at least 80% of assets invested in the respective cryptocurrencies and 50% of those staked to earn on-chain rewards. The filings, which became effective immediately, leveraged a rare C-corporation structure and Cayman Islands subsidiaries to bypass the traditional 19b-4 approval process, a move described by Bloomberg ETF analyst James Seyffart as “clever legal and regulatory workarounds.” The ETFs aimed to distribute staking rewards as dividend income, offering investors exposure to both price appreciation and yield from proof-of-stake blockchains.
However, the SEC’s letter, issued just hours after the filings went effective, flagged unresolved questions about whether the funds meet the legal definition of an investment company, a requirement for ETF listing. The agency noted that the C-corp structure may conflict with Rule 6c-11, known as the “ETF rule,” and warned that the registration statements, filed under Form N-1A, might be improper. The SEC also requested that prior correspondence with the issuers be made public to ensure transparency for potential investors.
This development follows the SEC’s recent guidance on May 29, which clarified that certain proof-of-stake staking activities, such as self-staking and custodial staking, do not constitute securities transactions under federal law. Despite this, the agency’s concerns about the REX-Osprey ETFs suggest a cautious approach to integrating staking into regulated financial products. SEC Commissioner Caroline Crenshaw dissented on the guidance, arguing it “sows uncertainty” around crypto regulation, a sentiment echoed by critics who see the agency’s actions as inconsistent under the current administration.
Greg Collett, general counsel at REX Financial, expressed confidence in resolving the SEC’s concerns, stating,
“We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do.”
Industry analysts, including Eric Balchunas of Bloomberg, noted that while the C-corp structure enabled a faster track to market, it has drawn regulatory scrutiny.
“This feels like pushing the envelope hard,” Balchunas said.
The funds, which have not yet launched or listed on any exchange, face an uncertain path. While spot Ethereum ETFs have traded since July 2024, no spot Solana ETF has been approved, adding complexity to REX’s proposal.
