Crypto Staking in ETPs? SEC Task Force Considers Bold Proposals

Key Takeaways:

Jito Labs and Multicoin Capital met with the SECs Crypto Task Force to discuss integrating staking into exchange-traded products (ETPs).
Two staking models were proposed: direct validator staking and liquid staking tokens (LSTs).
The meeting addressed solutions to regulatory challenges tied to staking in ETPs.

The U.S. Securities and Exchange Commissions Crypto Task Force recently held a meeting with Jito Labs and Multicoin Capital to explore the possibility of including staking as a feature in exchange-traded products. This meeting, held on February 5, comes as the SEC works to revamp its approach to crypto regulations.

Meeting notes, released last weekend, stated that Jito Labs CLO, Rebecca Rettig, and CEO, Lucas Bruder, attended the discussions, together with General Counsel, Greg Xethalis, and Managing Partner, Kyle Samani, of Multicoin Capital. The topic of discussion was how staking, one of the defining elements of proof-of-stake (PoS) chains like Solana and Ethereum, could enhance ETP products.

The attendees contended that staking in ETPs would accurately depict the original form of indigenous assets, offer rewards to investors, and enhance the security of the blockchain. They stressed that newer models and models could now address issues raised previously over the inclusion of staking.

Proposed Models for Staking Integration

Two potential models for the introduction of staking in ETPs were presented at the meeting. The first one involved staking some of the underlying assets included in the ETP through secure service providers, which operated validators. The approach ensures timeliness of redemption, retaining T+1 settlement cycles, by limiting the rate of the staked assets, as well as managing the time of unbonding.

The second form comprised liquid staking tokens (LSTs), such as Solanas JitoSOL. LSTs are tokens representing staked native tokens, together with rewards, while retaining redemption flexibility, unencumbered by the normal delay experienced while staking.

LSTs also provide simplified regulatory barriers by unlinking the operation of staking from outright control over the assets, ensuring compatibility with grantor trust models, as well as other financial regimes.

Regulatory Crypto Challenges Addressed with Practical Solutions

During the discussions, three concerns previously causing exclusion of staking from ETP applications arose, these being managing cycles of redemption, tax issues, and whether there is any securities transaction involved.

Both proposed models had viable solutions. By limiting staked amounts or employing LSTs, ETP issuers could remain compliant while still maintaining the advantage of staking. The visitors commented on how these strategies align investor interests while strengthening network security.

This meeting is an inflection point for the SECs dialogue with the crypto community. If successful, staking has the power to unlock fresh sources of investor returns while strengthening blockchain networks, putting the United States at the vanguard of crypto innovation.

Text source: TronWeekly

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