Grayscale Advocates for Staking in Ethereum ETFs
Grayscale Investments has recently engaged with the U.S. Securities and Exchange Commission (SEC) to advocate for permission to allow staking within Ethereum exchange-traded funds (ETFs). This initiative, if approved, could unlock significant rewards for investors and enhance the security of the Ethereum network, marking a crucial step forward for cryptocurrency investments in the U.S.
Meeting with SEC
On April 21, representatives from Grayscale met with the SEC’s Crypto Task Force in Washington D.C., during which they discussed possible amendments to their regulatory filings for the Grayscale Ethereum Trust ETF (ETHE) and Grayscale Ethereum Mini Trust ETF (ETH) to enable staking activities.
Craig Salm, Grayscale’s chief legal officer, expressed gratitude for the dialogue with the SEC, emphasizing the importance of modernizing regulations in line with the evolving Ethereum ETF market.
Potential Benefits of Staking
Grayscale outlined in their memorandum that U.S. Ethereum ETFs, managing an impressive $8.1 billion in assets, are currently missing out on potential staking rewards that have totalled approximately $61 million since their inception, due to regulatory restrictions. This loss does not account for the effect of daily compounding on rewards.
The company pointed out that non-U.S. Ethereum ETFs have been able to stake their holdings, thereby gathering those rewards. Enabling U.S. counterparts to do the same would not only benefit investors but also contribute to the network’s robustness as these ETFs would be involved in transaction validation and earn ETH rewards while reinforcing the blockchain’s security.
Liquidity Management Strategies
To bolster their case, Grayscale introduced various liquidity management strategies designed to alleviate risks associated with redemption, which includes a “Liquidity Sleeve” and options for short-term financing from custodians and liquidity providers. The memo indicated that the current model of spot ETH ETFs does not faithfully represent the underlying ETH assets due to the prohibition on staking.
International Success and Operational Safeguards
Grayscale also pointed to successful implementations of staking in ETPs in international markets like Canada and Europe, where it had not adversely affected market efficiency. Through a combination of experience in managing similar products and strong ties within the digital assets ecosystem, Grayscale believes they can enable safe and effective staking in their Ethereum ETFs.
The memorandum did acknowledge potential tax repercussions and risks tied to slashing, but Grayscale is optimistic that operational safeguards, especially those associated with Coinbase Custody, could effectively mitigate these concerns.
