A potential game-changer is on the horizon in Hong Kong, as there are discussions about introducing an Ethereum staking option for spot Ethereum exchange-traded fund (ETF) issuers.
Should the Securities and Futures Commission (SFC) of Hong Kong give the green light to staking, investors in local Ethereum (ETH) ETFs could stand to benefit by earning passive income through staking their tokens on the Ethereum network for transaction validation.
Staking involves token holders locking their crypto tokens for a specific period in exchange for rewards based on a percentage of the staked tokens. Various third-party staking services facilitate this process to meet the needs of users. Essentially, staking offers a way to earn rewards, in the form of extra income, while holding onto specific cryptocurrencies.
This potential move by Hong Kong stands in contrast to the United States Security and Exchange Commission’s (SEC) view on staking, which considers it an investment contract and a violation of securities laws. A broader adoption of spot ETF staking globally could ignite further discussions about the practice within the United States.
Staking has been a topic of contention in the U.S., with Coinbase at the forefront advocating for its legitimacy while clashing with the SEC on the matter. Coinbase argues that core staking should not be classified as a security since it does not entail an investment of money, and the opportunity cost of staking is not considered an investment.
According to Coinbase, staking rewards are payment for services rendered, which does not meet the criteria of an “expectation of profit” and entails ministerial maintenance rather than traditional investment efforts.
Recent reports have shown a strong interest in staking among crypto investors in Singapore, with 55% of them having staked their crypto through a centralized exchange. Staking has gained popularity in various other global crypto hubs as well.
In a significant development, the U.S. House of Representatives recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21), signaling a positive stance towards the crypto industry in the U.S. Additionally, the SEC’s approval of spot Ethereum ETFs has caused the price of Ethereum (ETH) to surge above $3900 at the time of this writing.
Despite these positive developments, the SEC’s stance on staking has deterred many U.S.-based companies, such as Fidelity Investments, from including staking in their upcoming Ethereum ETFs.