Solana Staking ETFs: Bridging TradFi with SOL staking
On May 30, 2025, the US Securities and Exchange Commission (SEC) responded with concern to a registration amendment on Ethereum and Solana Staking ETFs from REX Shares and Osprey Funds. These applications for Staking ETFs are trying to use a C corporation structure to bypass traditional investment company rules, raising regulatory concerns. The question is: Why does this matter? Solana Staking ETF approval could be a breakthrough moment, offering institutions a clear, regulated path for their investors to earn staking rewards without needing to navigate the complexities of on-chain participation.
This article explains how Solana Staking ETFs work, and discusses what their approval could mean for the decentralized finance (DeFi) industry.
Key Takeaways:
Solana Staking ETFs offer a regulated and accessible way for institutional and retail investors to gain exposure to SOL price appreciation and earn staking rewards, all without needing to manage wallets or navigate on-chain complexities.
REX Shares and Osprey Funds are pioneering C corporation–based ETF structures that distribute staking rewards while managing tax liabilities at the fund level. Though the SEC has raised legal concerns about staking within ETFs, these workarounds could expedite approval and set a precedent for future crypto ETFs.
If approved, Solana Staking ETFs could unlock significant institutional capital, increase network staking participation and potentially drive SOL’s price higher. This would also legitimize staking as a mainstream investment strategy and strengthen Solana’s ecosystem and network security.
What is a Solana Staking ETF?
A Solana Staking ETF is an exchange-traded fund that holds SOL tokens while delegating assets to blockchain validators to earn staking rewards for shareholders. These ETFs provide passive exposure to Solana's price appreciation, in addition to yield generated from network participation.
How would a Solana Staking ETF work?
Solana Staking ETFs would merge traditional finance infrastructure with blockchain mechanics through a meticulously orchestrated process, as follows:
Asset custody & delegation: The ETF custodian (e.g., Anchorage Digital) holds SOL tokens in segregated cold storage. Upon fund launch, the ETF manager (e.g., 3iQ, REX) directs the custodian to delegate a target percentage of SOL holdings (at least 50%, according to the REX-Osprey prospectus) to pre-vetted validators on Solana’s proof of stake (PoS) network. ETF managers must evaluate validators based on multiple criteria, including historical uptime, voting accuracy, commission structures and contributions to ecosystem development.
Reward generation & distribution: Validators on the Solana network earn SOL rewards each epoch (roughly every two days) for their role in processing transactions and maintaining the security of the network. These rewards are then distributed to stakers (including the ETF in this case) who contribute to the network’s consensus and overall security. This distribution creates a predictable income stream for stakers, supplementing the potential for capital appreciation of the underlying SOL tokens.
Once the rewards have been earned, the validator deducts their commission, and the remaining rewards are transferred to the custodian. From there, the ETF manager reinvests the rewards into the fund, either in the form of additional SOL or cash equivalents. This reinvestment helps to boost the fund's net asset value (NAV). For instance, 3iQ's Canadian Solana Staking ETF retains 60% of the rewards after fees, passing the remainder to shareholders.
Fee structure: Staking-based crypto ETPs adopt various fee structures. For instance, the 21Shares Solana Staking ETP charges a 2.5% annual total expense ratio (TER), providing exposure to both Solana's price movements and staking rewards. However, since these products generate additional income from staking, fund managers can use that income to offset management fees. This approach reduces the effective cost for investors, even if the headline TER remains unchanged, while maintaining the fund's profitability. On the other hand, the REX Solana Staking ETF will charge a 0.75% management fee and cover ordinary operating costs. As a C corp vehicle, it accrues both current and deferred US income tax, resulting in estimated first-year expenses of 1.28% of assets.
Liquidity management: Unstaking SOL requires a 2–3 day unbonding period per epoch. ETF managers mitigate liquidity risk by staking only a portion of assets (e.g., 50–80%), keeping reserves for shareholder redemptions. They monitor validator performance on a daily basis, redelegating stakes if uptime falls below 99% or slashing risks emerge.
Tax & corporate structure: REX’s Staking ETFs use a C corporation structure instead of the traditional regulated investment company (RIC) framework common to most ETFs. This avoids burdening shareholders with complex Schedule K-1 tax forms, treating staking rewards as dividends subject to corporate income tax at the fund level before distribution. In contrast, traditional RIC-based ETFs face legal challenges distributing staking income directly to investors, complicating their tax treatment. REX’s approach provides a regulatory workaround, enabling staking rewards distribution while managing tax obligations within the fund itself.
The current landscape of Solana Staking ETFs
On May 30, 2025, the SEC approved registration statements for staking ETFs from REX Shares and Osprey Funds, but quickly issued a warning letter expressing concerns that the staking feature might disqualify these funds from being classified as ETFs under the Investment Company Act of 1940. The core issue is whether staking constitutes "investment" (on the one hand, or "trading in securities," which would subject the funds to stricter regulatory requirements. SEC Commissioner Caroline A. Crenshaw criticized the approach behind this SEC guidance as a “fake it till you make it” tactic to crypto regulation.
To circumvent traditional ETF regulatory hurdles, REX Shares structures its funds as C corporations and uses Cayman Islands subsidiaries to gain crypto exposure, effectively sidestepping the usual 19b-4 rule change process. ETF analyst James Seyffart has described this as “a bunch of clever legal and regulatory workarounds” that could enable launches within weeks if the SEC refrains from further intervention.
Meanwhile, competition among major asset managers to roll out ETFs is intensifying. Franklin Templeton, Fidelity, VanEck, Bitwise and others have filed for Spot Solana ETFs, mostly targeting launches in late 2025. However, proposals incorporating staking face heightened scrutiny and delays. For example, Bitwise’s amendment to add staking to its Ethereum ETF has been postponed until July 2025, reflecting the SEC’s cautious stance.
Despite regulatory uncertainty, market sentiment remains optimistic. Prediction platform Polymarket has assigned an 83% chance of Spot Solana ETF approval this year, and Bloomberg analysts foresee a wave of launches by late 2025, potentially including staking products if REX’s strategy prevails.
The outlook for staking and spot ETF approvals
While the SEC’s regulatory framework around staking ETFs is still evolving with significant legal questions unresolved, innovative fund structures and strong market demand suggest that Solana ETFs, whether staking or spot, could gain approval and launch within this year, pending regulatory clarity and compliance.
It’s worth noting that Canada has already approved Solana Spot ETFs with staking, which may boost returns for investors by an estimated 2%–3.5% annually. Meanwhile, Cathie Wood’s ARK Invest has incorporated staked Solana into its ARKW and ARKF ETFs, with both funds now holding shares of Canada’s 3iQ Solana Staking ETF (SOLQ).
What will it mean if a Solana Staking ETF application is approved?
The approval of a Solana Staking ETF would shake up the cryptocurrency investment infrastructure, fundamentally changing the way institutional and retail investors access staking rewards, while providing regulatory legitimacy to PoS mechanisms.
Mainstream exposure and legitimization: Investors would gain regulated access to Solana (SOL) without the need for self-custody or crypto exchanges, lowering the barrier for both retail and institutional investors. Approval by regulators would also legitimize Solana’s staking model, marking a step toward broader acceptance of crypto as a viable investment option.
Built-In staking rewards: A staking ETF would allow investors to earn rewards while holding shares in the ETF, capturing both price appreciation and yield without needing to manage the technical aspects of staking themselves. This would make it easier for investors to gain passive income from Solana staking.
Potential price impact: Similar to Bitcoin ETFs, approval could lead to increased institutional demand, reduce the supply of SOL tokens in circulation (due to staking lockups) and potentially drive up the price of SOL over time. Analysts predict a breakout to $200+ (pre-approval), with the potential for even higher valuations once the ETF launches.
Institutional adoption and market growth: With $44.1 trillion in US retirement assets, a Solana Staking ETF could offer the first regulated path for institutional investors and retirement accounts to earn yield from blockchain participation. This could fuel enormous capital inflows into Solana and accelerate crypto adoption among traditional investors.
Network security and ecosystem growth: Institutional staking could boost Solana’s staking ratio, enhancing decentralization and network resilience. This would address past concerns about Solana’s congestion issues. Finally, the approval of a Solana Staking ETF could drive further ecosystem growth and encourage developers and projects such as Solaxy, Solana’s first Layer 2 solution, to build on Solana.
The bottom line
Solana Staking ETFs promise to marry Wall Street’s ease with blockchain’s yield, letting investors earn network rewards without needing to wrestle with wallets or validators. Despite the SEC’s foot-dragging, innovative structures like REX’s C corp model could achieve quicker approval, potentially leading to increased demand for Solana, driving up its price and bolstering network security. If successful, Solana Staking ETFs could pave the way for broader crypto adoption, enhance ecosystem growth and provide much-needed tax clarity and risk management, changing the market for both TradFi and DeFi.
#LearnWithBybit