The Securities and Exchange Commission (SEC) might be close to approving an ETF that incorporates staking. This is based upon Solana, altering the filing requirements.
In early 2024, the SEC approved a Bitcoin Spot ETF. Later that year, Ethereum followed, with the SEC giving the go ahead on that. The former was wildly successful, pulling in tens of billions in investment money.
This offered the ability to gain exposure to cryptocurrency (Bitcoin and Ethereum) through retirement accounts such as pension funds. We saw a number of funds operating on behalf of government employees invest in these ETFs.
These products are able to catch price movements. In other words, we are dealing with speculation assets. Price goes up, holders make money. Of course, the reverse is also true.
Here is where we see a large portion of the investing public reside with regards to stocks. Most are speculating on the price moves.
The financial world offers another type of product: one which focuses upon yield. Here is where we see things such as bonds. These are instruments where the buyer is looking to generate a specific reward, mostly fixed based upon the product.
Crypto might be entering that realm.
Solana Staking ETF: A Change In Crypto Yield
What we are seeing with the Solana ETF is best described as a dividend stock.
Under this scenario, someone buy stock in a company such as General Motors. Based upon the dividend payout, there is a certain yield. For the sake of our discussion, we will use 4%.
If the price of the stock is $100 and the dividend (per share) is $4, we have the 4% return. If the dividend remains consistent, then the yield increases or decreases as the price moves. Let us suppose the price moved to $200 but the company paid the same dividend. Now we are talking about a 2% return.
As we can see, this presents a bit of a quandary. Obviously, investors want the price to go up. However, if seeking yield, unless the dividend payout increases, the yield declines.
The majority of people do not look at the return in this manner. The dividend is simply a way to increase the total return, including the price gains. Naturally, if the price declines, this helps to offset it.
With the Solana ETF, we are looking at the establishment of something similar.
Yield On Crypto
Within the crypto world, yield can be generated by staking tokens. There are often built-in mechanisms where new coins are distributed based upon some type of lock up. It is often a security feature of the network, helping to provide resiliency.
The majority of crypto watchers are "price go up" people. However, when we look at the size of the markets, those who seek yield actually outpace those who are simply speculating.
Crypto is quickly getting to the point where it is going to have to get in alignment with this reality. The Solana ETF might start the process.
REX Shares is reportedly ready to launch the country’s first-ever Solana staking ETF after receiving what analysts interpret as informal green lights from the SEC.
The ETF, structured in a rare way to bypass standard regulatory filings, may mark a breakthrough moment for crypto-based yield products in traditional finance.
Under the structure of this ETF, the holders of the units would operate similar to the Bitcoin and Ethereum ETFs. The difference is the coins would not simply be held in custody. Instead, they would be staked, generating a return. Here is where we see the similarity to a dividend stock.
All staking rewards paid out would become part of the fund. Obviously, these are paid out in Solana, meaning the number of coins in the fund will keep growing even without new money entering. Another way of looking at it is the value of each unit will grow by the yield rate, let us say 4%, even if the price of the coin didn't move throughout the year.
Balchunas added that the updated prospectus is fully filled in, calling it a sign of an imminent launch. REX confirmed the news, stating that “the first-ever staked crypto ETF” is on the way, offering exposure to Solana along with on-chain staking rewards.
Could this open the door to other funds of this nature? One that comes to mind is Ethereum. The present ETFs do not have this incorporated. Would it be possible to alter the filings to become a fund with some yield?
This is all part of the process. Once Wall Street started to get involved, the product innovation was going to explode.
It is exactly what is happening.