Ethereum ETF: the immense prospects for staking
Subscribe to our smart subscription to read this report in full
The introduction of the first Bitcoin ETFs in the US in January marked a major turning point in the financial sector. Now, attention is turning to the possible arrival of the first Ethereum ETFs on Wall Street. To date, seven proposals have been submitted, including from major players such as BlackRock, which manages $9 trillion in assets, as well as Fidelity and VanEck.
While the timetable for a decision by the SEC, the US financial regulator, remains uncertain, it is constrained by administrative procedures to rule on the VanEck case no later than 23 May 2024. This represents a huge opportunity for staking providers, given that these ETFs are likely to use staking to add value to their reserves, which run into billions of dollars.
Laszlo Szabo, CEO of Kiln, shares this enthusiasm: "We are currently talking to 90% of ETF issuers about staking. In the same way that stablecoin issuers invest their dollar reserves in US treasury bills, ETF issuers could use part of their ethers reserves in staking to benefit from the rewards. I think this will be central to their business model."
In Europe, where regulation is more flexible on this issue, similar products are already exploiting this concept. Companies such as CoinShares, 21Shares and WisdomTree offer ETCs that place part of their funds in staking. Jérôme Castille, head of compliance at CoinShares in France, points out, "It's good for investors because it helps lower annual management fees."
Two challenges: liquidity and regulation
However, liquidity remains a challenge for these innovative financial products. Funds in staking must meet a deadline before they can be recovered, which limits the possibility of staking the entire reserves. "The only solution for staking 100% of the reserve is liquid staking. However, with tools like Lido, this poses a problem for the regulator, as this system is based on pooling assets on a global scale", explains Laszlo Szabo. He warns that this could mix VanEck's ethers with those of users in other countries, complicating regulation by the SEC.
To overcome this challenge, Kiln has developed an NFT validator, a tokenisation of a validator, which guarantees that the funds deposited in it belong exclusively to the asset manager. "It's an elegant solution for institutional investors, but SEC approval of staking from reserves for future ETFs is still largely uncertain," moderates Stanislas Barthélémi, crypto expert at KPMG. "It's a much higher level of complexity from a regulator's point of view."
It's important to note that the SEC took nearly 9 years to accept Bitcoin ETFs, which are relatively simple to operate compared to the mechanics of staking. While staking seems like a natural option in the long run, the road to getting there is likely to be a long and rocky one.