US Treasury Secretary

Treasury and IRS Open Door for Crypto ETF Staking: What It Means for Digital Asset Investors

Treasury & IRS just cleared crypto ETFs to stake assets and share rewards—a game-changing move for institutional adoption. Here's what it means for Bitcoin, Ethereum, and potentially XRP investors.

The Ripple Effect

— 6 min read
Treasury and IRS Open Door for Crypto ETF Staking: What It Means for Digital Asset Investors

The U.S. Treasury Department and Internal Revenue Service sent shockwaves through the crypto industry Monday by issuing new guidance that, for the first time, provides a clear regulatory framework for crypto exchange-traded products to stake digital assets and share rewards with investors.

Treasury Secretary Scott Bessent announced the development on X, stating the move "increases investor benefits, boosts innovation, and keeps America the global leader in digital asset and blockchain technology." The announcement marks a pivotal shift in U.S. crypto policy, potentially unlocking billions in institutional capital that has been sidelined due to regulatory uncertainty around staking within regulated investment products.

What Was Actually Announced

According to Bessent's statement and subsequent reporting, the Treasury and IRS have created what industry experts are calling a "safe harbor" that allows crypto ETPs—particularly trusts holding assets like Bitcoin and Ethereum—to stake digital assets without losing their favorable tax classification as grantor trusts.

ConsenSys lawyer Bill Hughes outlined the specific conditions under which trusts may stake digital assets under this new framework:

The Five Key Requirements:

  1. Single Asset Plus Cash: Trusts must hold only one digital asset type and cash
  2. Qualified Custodian: A qualified custodian must manage keys and execute staking operations
  3. SEC-Approved Liquidity: Maintain SEC-approved liquidity policies ensuring redemptions can occur even with staked assets
  4. Arms-Length Arrangements: Keep independent relationships with staking providers
  5. Limited Activities: Strictly limit operations to holding, staking, and redeeming assets—no discretionary trading

Hughes emphasized that this guidance "transforms staking from a compliance risk into a tax-recognized, institutionally viable activity" and predicted it would "accelerate mainstream adoption across proof-of-stake blockchains."

Why This Matters Now

Until this announcement, U.S. spot crypto ETFs—particularly Ethereum ETFs—were prohibited from staking, putting them at a competitive disadvantage compared to international products. Hong Kong, Canada, and European jurisdictions have already approved staking within ETFs, allowing their products to generate additional yield for investors.

The regulatory clarity addresses a longstanding structural problem for crypto ETPs. As reported by TheStreet, fund issuers have sought to integrate staking into regulated investment vehicles but faced uncertainty about tax treatment and regulatory compliance.

Bottom Line Up Front: This guidance doesn't just clarify rules—it fundamentally changes the economics of crypto ETPs by allowing them to generate yield through staking while maintaining tax-efficient structures.

Market Implications: Institutional Capital Unlocked

The impact on institutional adoption could be substantial. Bloomberg ETF analyst James Seyffart has previously predicted that Ethereum ETFs could surpass Bitcoin ETFs if staking were permitted, noting that over 28% of total ETH circulation is already in staking protocols.

For context, institutional funds currently hold approximately 3.3 million ETH through exchange-traded funds—roughly 3% of circulating supply. With 27% of ETH already staked, allowing ETF staking could increase total staked ETH by more than 10% without factoring in additional inflows attracted by staking yield.

What About XRP?

While the announcement focused on the general framework for crypto ETPs and specifically mentioned assets like Bitcoin and Ethereum, XRP ETF applications remain in various stages of SEC review.

Current XRP ETF Status:

  • Multiple spot XRP ETF filings from major issuers including Franklin Templeton, Bitwise, 21Shares, and Canary Capital
  • Five XRP spot ETFs were listed on the DTCC as of November 10, often a precursor to approval
  • The U.S. government shutdown delayed October approval deadlines, with potential launches now expected in November

XRP-Specific Considerations:

If XRP ETFs gain approval and if they're structured similarly to other crypto ETPs, they could theoretically benefit from this staking guidance. However, several important caveats apply:

The Theory: XRP uses a consensus mechanism that doesn't involve traditional proof-of-stake in the same way as Ethereum or Solana. While XRP holders can earn rewards through certain mechanisms, the technical implementation differs significantly from PoS networks.

Reality Check: It's unclear whether the safe harbor conditions as described by Hughes would apply to XRP's consensus mechanism or if additional guidance would be needed. XRP ETF applicants have not publicly announced plans to incorporate staking or yield generation, and the Treasury guidance did not specifically address XRP.

What We Don't Know:

  • Whether XRP's validation system qualifies under the "permissionless proof-of-stake networks" language Hughes referenced
  • If ETF issuers plan to pursue staking/yield features for XRP products
  • How the SEC will view staking in XRP ETFs given the asset's unique technical characteristics

Regulatory Context: A Changing Landscape

This development arrives amid broader regulatory evolution in U.S. crypto policy. The IRS has been working to clarify crypto taxation throughout 2025, including:

The new staking guidance builds on this framework by addressing how institutional products can participate in staking while maintaining tax efficiency for investors.

What Happens Next

Immediate Impact:

  • Existing Ethereum ETF issuers like BlackRock, Fidelity, and Franklin Templeton are expected to amend their filings to incorporate staking
  • Solana—including Bitwise's BSOL—already include staking features and benefit from this clarity
  • Other proof-of-stake networks with pending ETF applications may gain traction

Longer-Term Questions:

  • Will the SEC approve staking amendments for existing Bitcoin and Ethereum ETFs?
  • How quickly will issuers implement staking infrastructure?
  • What percentage of ETF assets will issuers choose to stake?
  • Will competitive pressure force all PoS ETPs to offer staking to remain competitive?

Challenges and Considerations

While the guidance removes major regulatory barriers, practical challenges remain:

Technical Complexity: Managing staking operations at institutional scale requires sophisticated infrastructure, qualified custodians, and robust security protocols.

Validator Centralization: Industry experts worry that if ETF managers default to a handful of custodians or third-party operators, it could concentrate validator power and potentially threaten network decentralization.

Operational Costs: While staking generates yield, it also incurs costs for custody, validator operations, and compliance that will reduce net returns to investors.

Liquidity Management: Maintaining sufficient liquidity to handle redemptions while maximizing staked assets requires careful balance, especially during market volatility.

Expert Reactions

Greg Xethalis, General Counsel at Multicoin Capital, called the development a resolution of "one of the most complex structural issues facing crypto-based investment products."

However, some analysts urge caution about over-hyping near-term impact. The guidance creates a framework, but each ETF issuer must still navigate SEC approval processes, build technical infrastructure, and make economic decisions about whether staking makes sense for their specific product.

Key Takeaways

What's Confirmed:

  • Treasury and IRS issued guidance allowing crypto ETPs to stake under specific conditions
  • Safe harbor framework addresses tax treatment concerns
  • This applies to proof-of-stake networks where technical requirements can be met
  • Represents major U.S. policy shift toward supporting institutional crypto participation

What Remains Uncertain:

  • Timing of SEC approvals for staking amendments to existing ETFs
  • Which specific assets and mechanisms qualify under the framework
  • How quickly institutional capital will flow into staking-enabled products
  • Long-term competitive dynamics between staking and non-staking ETPs

For Investors:

  • Staking-enabled ETPs will likely offer higher yields than non-staking alternatives
  • This feature may become a key competitive differentiator among similar products
  • Additional yield comes with additional complexity and potential risks
  • International investors already had access to similar products; U.S. investors now catching up

The guidance represents a significant step toward integrating digital assets into mainstream finance, but the real impact will depend on how quickly and effectively issuers can implement staking while maintaining the security, liquidity, and investor protections that regulators demand.

DISCLAIMER

This newsletter is for informational purposes only and does not constitute investment advice, advertising, or a recommendation to buy, sell, or hold any securities. This content is not sponsored by or affiliated with any of the mentioned entities. Investments in cryptocurrencies or other financial assets carry significant risks, including the potential for total loss, extreme volatility, and regulatory uncertainty. Past performance is not indicative of future results. Always consult a qualified financial professional and conduct thorough research before making any investment decisions.

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