The U.S. Securities and Exchange Commission (SEC) has raised new legal concerns surrounding two proposed cryptocurrency exchange-traded funds (ETFs) tied to Ethereum (ETH) and Solana (SOL), days after issuing a seemingly favorable clarification on crypto staking.
In a letter sent May 31 to the legal counsel of ETF Opportunities Trust, the Commission flagged unresolved issues that may jeopardize the regulatory standing of the REX-Osprey ETH and SOL ETFs.
Although the registration for both ETFs formally became effective on May 30, the SEC warned that the funds may not comply with federal securities law due to the nature of their structure - particularly their use of staking mechanisms and questions about whether they legally qualify as "investment companies" under the Investment Company Act of 1940.
This development introduces further complexity into the already contested landscape of crypto-related investment products, especially at a time when the industry was interpreting recent SEC guidance as a potential shift toward a more accommodative regulatory posture on staking practices.
The SEC’s primary concern centers on whether the proposed REX-Osprey Ethereum and Solana ETFs meet the legal definition of an “investment company” as outlined in the Investment Company Act of 1940. Under the Act, a fund must be primarily engaged in investing, reinvesting, or trading in securities, or hold more than 40% of its assets in securities to qualify.
In the letter, SEC staff stated: “Commission staff continues to have unresolved questions whether the Funds, if structured and operated as proposed, would be able to meet the definition of ‘investment company’ under the Investment Company Act.”
Additionally, the Commission raised procedural issues with how the funds were registered. The filing was submitted under Form N-1A, which is specifically reserved for mutual funds that fall within the definition of an investment company. If the SEC ultimately determines that these crypto ETFs do not meet that definition, the use of Form N-1A would be considered improper.
The SEC also noted that the ETFs may not comply with Rule 6c-11, which provides streamlined conditions under which ETFs can operate and list on public exchanges without requiring individualized exemptions. If the structure of the ETFs falls outside this rule’s scope, sponsors may be required to go through a lengthier and more rigorous approval process - or risk denial entirely.
Effective But Not Listed: A Legal Grey Zone
While the ETFs’ registration statements were allowed to become effective as of May 30, that does not equate to a green light for public trading. Neither the Ethereum nor Solana funds are listed on any exchange, and further SEC action could stall or block their eventual launch.
The ETFs are sponsored by REX Shares and Osprey Funds, using ETF Opportunities Trust as the legal issuer. The initial filing submitted in January 2025 also included applications for other digital asset funds, including proposed ETFs tied to Bitcoin, XRP, and several high-volatility meme coins such as Dogecoin, BONK, and a token associated with Donald Trump’s public persona.
The SEC letter comes just one day after the agency’s Division of Corporation Finance issued updated guidance indicating that certain forms of crypto staking - such as self-staking or custodial staking through validators - do not meet the criteria for securities under the Howey Test. That clarification marked a shift from earlier enforcement cases, where the SEC had argued that staking-as-a-service models constituted unregistered securities offerings.
While the guidance was not legally binding and drew dissent from Commissioner Caroline Crenshaw, it appeared to provide regulatory breathing room for crypto networks reliant on proof-of-stake (PoS) validation systems. However, the SEC’s subsequent concerns about staking components embedded within ETF structures suggest that staking may remain problematic in regulated investment vehicles, even if it’s acceptable in a direct user context.
This discrepancy points to a broader regulatory inconsistency: staking may not be a security when done by individuals or custodians, but it may raise legal flags when embedded in funds marketed to retail and institutional investors.
Legal and Market Implications
The SEC’s concerns about the REX-Osprey filings serve as a reminder that even as some crypto-related products gain traction, others continue to face roadblocks - especially when they blur the line between commodity-like utility and investment-like structure.
For asset managers and ETF sponsors, the letter signals heightened scrutiny over how staking and digital asset custody are integrated into fund design. It may also prompt further delays or modifications in filings for ETFs tied to non-Bitcoin cryptocurrencies, particularly those that rely on staking for network security and validator rewards.
Meanwhile, investors expecting the rapid rollout of a broader range of crypto ETFs may need to temper expectations. While spot Bitcoin ETFs have seen regulatory momentum, Ethereum and Solana products remain entangled in legal ambiguity - both because of their technical features and because of their potential classification under securities law.
Broader Regulatory Climate
The SEC’s dual stance - permitting staking in one context while questioning it in another - reflects the piecemeal and evolving nature of U.S. crypto regulation. The Commission is still without a comprehensive framework for digital assets, leading to case-by-case decisions and inconsistent interpretations.
The situation is further complicated by pending legislation in Congress, which could eventually establish clearer rules for crypto ETFs, staking practices, and token classifications. Until then, ETF sponsors are likely to encounter unpredictable regulatory hurdles, particularly for products that involve newer blockchain models or yield-generating components.
While the effective registration of the REX-Osprey Ethereum and Solana ETFs appeared to signal progress for crypto investment products, the SEC’s subsequent warning highlights ongoing legal uncertainty - particularly around the intersection of staking and securities law.
As regulatory frameworks continue to evolve, sponsors of crypto ETFs will face increasing pressure to balance technical innovation with legal compliance. The outcome of this case may help define how far the ETF model can extend into the staking-heavy world of Layer 1 blockchains.