Grayscale Meets SEC Again. What is the Outcome?

Grayscale Investments met with the U.S. Securities and Exchange Commission (SEC) on April 21, 2025. The discussion focused on introducing staking to Ethereum exchange-traded funds (ETFs) that the firm offers. According to a report by Finance Feeds , the company aims to update its filings for the Grayscale Ethereum Trust ETF (ETHE) and the Ethereum Mini Trust ETF (ETH). Grayscale Cites Missed Rewards and Seeks Permission for Staking During the meeting, Grayscale reported that Ethereum ETFs based in the United States have missed out on staking rewards. According to the documents submitted, these missed rewards amount to approximately $61 million through February 2025. This figure does not include daily compounding effects. The firm explained that other Ethereum holders outside the U.S. have received these rewards, as staking is allowed in international markets. Representatives stated that over $8.1 billion is currently held in U.S. Ethereum ETPs. Nearly half of that is attributed to Grayscale’s offerings. Grayscale proposed that permitting staking in these products would boost investor returns and support network security. In the meeting, the team outlined how participation in staking enables ETPs to help validate Ethereum transactions. The ETPs would contribute to network operations through this activity and receive ETH-denominated rewards in return. SEC Decision Extended Amid Regulatory Leadership Change Grayscale’s request was initially expected to receive a response by April 17, 2025. However, the SEC extended the decision timeline to June 1, 2025. The agency cited the need for a more detailed assessment of the operational and regulatory impacts of staking. This delay coincides with a leadership change at the SEC. Paul Atkins, a former commissioner, was recently appointed as Chair. His background includes involvement in regulatory policy affecting digital assets. His arrival adds a new layer to the ongoing discussion about digital asset regulation in the United States. The extension provides the SEC with additional time to evaluate the technical and compliance implications of the proposed staking structure. The decision will shape how Ethereum-based financial products operate in the U.S. market going forward. Grayscale submitted a detailed plan for enabling staking in a secure and accessible format. Their model incorporates a “point-and-click” staking option to simplify user interaction. Under this setup, asset managers would retain full custody of Ethereum tokens used for staking. The custodial structure proposed is meant to mitigate risks often associated with delegation in stakeholder activities. Grayscale reported that custodians, such as Coinbase Custody, would provide operational safeguards. These safeguards aim to prevent losses linked to staking errors or penalties such as slashing. Additionally, the firm stated that its structure would comply with existing investor protection guidelines. The setup ensures assets remain under the control of regulated entities while allowing staking participation. Liquidity Measures to Handle Redemption During Unstaking Periods Another proposal component includes mechanisms to maintain liquidity when tokens are locked in staking. According to Grayscale, a multi-layered strategy would address potential challenges in asset redemption. The model introduces a liquidity sleeve, short-term financing options with custodians, and a revolving credit facility. These measures aim to prevent delays or shortfalls in meeting redemption requests while Ethereum is temporarily unavailable due to network requirements for unstaking. The documents indicate that these mechanisms help reduce volatility or disruption within the ETPs. The firm reported that similar methods have been employed in traditional financial products to manage liquidity risk effectively. During the SEC meeting, Grayscale pointed to international examples where staking has been successfully integrated into Ethereum ETPs. The firm cited Canada, Europe, and Hong Kong as jurisdictions where this practice has already received regulatory approval. These non-U.S. markets have allowed Ethereum ETFs to participate in staking while maintaining standard trading functionality. According to Grayscale, these models prove that staking can coexist with efficient secondary market operations. The firm argued that U.S. regulations have yet to reflect the evolving global standards surrounding digital asset management. By referencing these regions, Grayscale conveyed that similar structures function effectively in comparable financial environments. Updated Filings Submitted for Review Under Form 19b-4 Grayscale filed an amendment to its Form 19b-4 application as part of the proposal. This submission includes updated language that explicitly requests permission to stake ETH held in the Grayscale Ethereum Trust ETF and the Ethereum Mini Trust ETF. Craig Salm, the firm’s chief legal officer, confirmed that the materials were presented to the SEC’s Crypto Task Force. He noted the importance of aligning U.S. regulations with the operational features of Ethereum’s proof-of-stake network. According to the filing, current ETH spot ETPs do not fully represent the underlying asset. This is because they are not allowed to participate in staking. The amendment aims to address that gap by allowing full asset representation through network participation. The meeting documents included an analysis of potential risks associated with staking. These include slashing penalties and tax reporting complexities. Grayscale stated that operational controls and robust custody partnerships are in place to manage these concerns. Coinbase Custody is designated as the primary provider of staking infrastructure and custody for the Ethereum holdings. The firm emphasized that operational risks can be mitigated through established procedures and technical safeguards. Broader Market Impact Hinges on SEC’s Final Determination The final outcome of the SEC’s decision is expected to affect the direction of Ethereum-based products in the U.S. A positive decision could lead to broader adoption of staking features in similar investment vehicles. If approved, the Grayscale model could become the first U.S. Ethereum ETP with authorized staking capabilities. This would enable regulated entities to interact with the Ethereum network in new ways, including earning ETH through validation. The decision may also influence how other asset managers structure their digital asset products. It could result in a revised framework that accommodates staking within the regulatory scope of the U.S. securities market. With the decision deadline approaching, all parties involved await further communication from the SEC. The added time is being used to evaluate technical structures, legal frameworks, and operational safeguards. The industry’s response will likely depend on how the SEC balances investor protection with evolving technological capabilities in Ethereum’s proof-of-stake ecosystem.