U.S. SEC Task Force Engages Jito and Multicoin on Staking in Crypto ETPs

The United States Securities and Exchange Commission (SEC) task force discussed potentially including staking in exchange-traded products (ETPs) with Jito Labs and Multicoin Capital management.

Staking plays a vital role in the security of blockchain. It involves depositing digital assets into a smart contract. While this process helps secure the underlying blockchain, it also rewards participants for their contribution.

Proposed Models for Staking in ETPs

CEO Lucas Bruder and Rebecca Rettig, Chief Legal Officer of Jito Labs, joined Multicoin Capital’s Managing Partner Kyle Samani and General Counsel Greg Xethalis to discuss two main topics, namely: the ability to include staking as a feature in ETP and the potential trading models for staking in certain crypto assets. The document emphasized the importance of staking to investors and network security, stating:

“Restricting staking in cryptoasset ETPs harms (i) investors, by crippling the productivity of the underlying asset and depriving investors of potential returns, and (ii) network security, by preventing a significant portion of an asset’s circulating supply from being staked.” 

The meeting’s note presents two proposed models for implementing staking in crypto ETPs. The first path, called the Services Model, would allow ETPs to stake a portion of their native assets through validator service providers while maintaining timely redemptions. The second approach, the LST Model, involves ETPs holding liquid staking tokens representing staked versions of native assets.

Additionally, the document addressed the concerns behind the SEC’s previous hesitation in removing staking features from earlier ETP applications. These concerns include redemption timing, tax implications for grantor trusts, and the classification of staking services as securities transactions.

A Changed Stance?

The latest move by the SEC’s Crypto Task Force, with Hester Peirce at the helm, reflects its ongoing efforts to establish a clear regulatory framework for cryptocurrency investment products. Bloomberg ETF analyst James Seyffart also noted that the agency’s position on staking could be shifting.

Moreover, this discussion echoes President Donald Trump’s pro-crypto stance. The task force’s regulatory approach contrasts with the previous administration’s approach under former SEC chairman Gary Gensler. Then, staking was considered a violation of federal regulations and thus restricted. The regulator also used enforcement actions and retroactive measures, which many in the industry struggled to understand, leading to confusion and a lack of innovation.