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The Securities and Exchange Commission (SEC) just pulled the emergency brake on what could have been the first staking-enabled cryptocurrency funds, telling REX Financial and Osprey Funds their proposed products might not legally qualify as exchange-traded funds (ETFs) at all.
In a Friday letter that surfaced over the weekend, SEC staff said they have “unresolved questions” about whether the funds meet basic legal requirements under federal securities law. The timing stings—the letter came just hours after the companies announced their registration had gone effective. They were ready to start trading soon.
The proposed funds would track Ethereum and Solana while generating extra returns through staking. This process lets investors lock up crypto tokens to help secure blockchain networks in exchange for rewards.
REX and Osprey structured their products as C-corporations, an unusual choice for ETFs that immediately caught regulators’ attention.
“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,” SEC Associate Director Brent J. Fields wrote in the May 30 letter.
The agency pointed to specific problems with the C-corp structure, which conflicts with Rule 6C-11, commonly called “the ETF rule.” This regulation defines what corporate structures qualify for exchange-traded fund status. Most ETFs use different legal frameworks that more easily satisfy these requirements.
Fields also warned that the companies’ disclosures about their investment status “may be potentially misleading” to investors.
REX remains confident they can fix the issues. “We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that,” Greg Collett, general counsel at REX Financial, told Bloomberg.
The situation shows the SEC’s careful approach under the Trump administration. The current leadership has generally been more friendly to crypto than the previous team. Last week, the agency issued guidance saying crypto staking doesn’t violate securities laws, yet it continues delaying decisions on staking and altcoin ETF applications.
Bloomberg Intelligence ETF analyst James Seyffart expects most applications won’t get approved until their October deadlines anyway. “Almost all of these filings have final due dates in October,” he noted. “It is uncommon for ETF applications to be approved so early.”
The regulatory uncertainty comes as crypto ETF issuers push aggressively to be first to market with new products. Bitcoin ETFs launched successfully last year, and spot Ethereum ETFs began trading in July. However, staking products represent uncharted territory.
If the SEC forces changes or rejects the current structure, it could set important precedents. This would affect how staking investment products get regulated going forward. The crypto investment community is watching closely, as approval could open doors for fresh institutional money flowing into digital assets.
