SEC Delays Approval for Grayscale Ethereum ETF Staking and In-Kind Redemption Proposals Until June

On April 14, 2025, the U.S. Securities and Exchange Commission (SEC) issued filings announcing a delay in approving staking proposals for Grayscale Investments' Ethereum Trust ETF (ETHE) and Ethereum Mini Trust ETF (ETH), pushing the decision to June 1. Concurrently, the SEC postponed rulings on in-kind creation and redemption proposals for VanEck's Bitcoin Trust (HODL), VanEck's Ethereum Trust, and WisdomTree's Bitcoin Fund until June 3.

The SEC stated that the delay is necessary to allow "sufficient time to consider the proposed rule change and the issues raised therein," as noted by Assistant Secretary Sherry R. Haywood in a Monday filing regarding VanEck's crypto ETFs. This cautious approach aligns with the SEC's stance during the 2024 approval of spot Ethereum ETFs, when it required issuers to remove staking provisions due to concerns that proof-of-stake (PoS) mechanisms might implicate securities laws.

Grayscale's staking proposal, filed by NYSE Arca on February 14, 2024, seeks to enable its Ethereum ETFs to generate network rewards by staking their ETH holdings. Staking, a core feature of Ethereum since its 2022 transition to PoS during "The Merge," allows holders to lock ETH to secure the network and earn annualized rewards of approximately 2.37%, according to Coinbase. If approved, Grayscale's ETF investors would indirectly benefit from these rewards, enhancing the funds' appeal. Grayscale stated in its filing, "Permitting staking would align the ETFs more closely with Ethereum's actual returns, improving yield efficiency for investors." However, the SEC is concerned that validator risks, such as slashing penalties, could increase legal and operational complexities, particularly given unresolved debates about whether PoS constitutes a security.

Meanwhile, VanEck's proposal, submitted through the Cboe BZX Exchange, aims to introduce in-kind creation and redemption for its Bitcoin and Ethereum ETFs. Unlike cash-based mechanisms, in-kind processes allow authorized participants to exchange ETF shares directly for underlying assets like BTC or ETH, offering greater tax efficiency and lower transaction costs. The SEC has previously mandated cash creation and redemption for crypto ETFs to streamline oversight, but in-kind mechanisms are seen as a way to attract more institutional investors and boost market liquidity.

Since the approval of spot Bitcoin ETFs in January 2024, crypto ETFs have become a key avenue for institutional investment. According to Coinglass, as of April 2025, BlackRock's iShares Bitcoin Trust (IBIT), the world's largest Bitcoin ETF, manages assets worth $47 billion. Ethereum ETFs, approved in July 2024, have lagged due to the absence of staking, with Grayscale's Ethereum Trust ETF holding approximately $3.46 billion in assets.

Despite the SEC's delay in approving ETH ETF staking and in-kind redemption for BTC and ETH ETFs, prices for BTC and ETH have shown no significant fluctuations. This stability suggests that the crypto community remains confident in the eventual approval of ETH ETF staking, viewing it as a matter of timing rather than likelihood.

James Seyffart, an ETF analyst at Bloomberg Intelligence, told Coindesk, "The SEC sets its own timeline, moving at a pace that suits its priorities. From what I've observed, they aren't swayed by the actions of other regulators. While they may take note of global trends, another regulator's approval won't push the SEC to rush or align its decisions. They'll proceed on their own terms."