This week, REX Shares confirmed it will launch the Solana Staking ETF, "REX-Osprey SOL+Staking ETF," on Wednesday, July 2. This marks the first equity ETF in the US focused on Solana with integrated staking rewards. The introduction of this ETF highlights the deepening integration of cryptocurrency and traditional finance, offering investors dual benefits: exposure to asset price movements and additional yield through staking.
Shortly after the announcement, SOL’s price surged over 6%, approaching $160, though it has since settled around $153. JTO also saw a brief spike of over 8%, nearing $2.50. Although both tokens have largely retraced these gains, the market’s strong reaction underscores the significance of this new product.
Who Is Behind the ETF and What Service Providers Are Involved?
The “REX-Osprey SOL+Staking ETF,” trading under the ticker SSK, is a collaborative effort between REX Shares and Osprey Funds. REX Shares is an innovative ETP provider specializing in alternative strategy ETFs and ETNs, known for its MicroSector and T-REX product lines that offer leveraged and inverse instruments. Recently, the firm has also introduced a range of options-based yield strategies.
Osprey Funds began as the cryptocurrency division of REX Shares in 2019 before spinning off as an independent entity in 2021. The team has launched over 100 exchange-traded products and has been investing in Bitcoin since as early as 2013. The fund is expected to hold Solana indirectly through a Cayman Islands-registered subsidiary, REX-Osprey (TM) SOL + Staking (Cayman) Portfolio SP. This subsidiary is wholly owned and controlled by the fund, which will consolidate its investments.
Key service providers for the ETF include:
- Investment Advisor: REX Advisers, LLC, with Matthew Pelletier as the portfolio manager overseeing daily investment management. Pelletier has held fixed-income sales and trading roles at BNP Paribas, Bank of the West, and Susquehanna International Group.
- Fund Administrator: Commonwealth Fund Services, Inc., responsible for overseeing fund operations.
- Financial Management and Fund Accounting: U.S. Bank, providing specific financial management and accounting services.
- ETF Custodian: U.S. Bank National Association, safeguarding cash, securities, and other non-Solana assets, settling related trades, and collecting investment income.
- Cryptocurrency Custodian: Anchorage Digital Bank National Association, securing the fund’s Solana holdings and liquid staking tokens (LSTs), settling Solana-related transactions, and collecting staking rewards.
- Distributor: Foreside Fund Services LLC, handling the distribution of creation units to authorized participants.
Fund Strategy: From Asset Allocation to Staking
The ETF’s core investment strategy includes the following key elements:
- Primary Investment Objective: The fund aims to track the price performance of Solana while providing investment results that reflect both capital appreciation and staking yield.
- Asset Allocation: According to filings with the U.S. Securities and Exchange Commission (SEC), the fund will invest at least 80% of its net assets in Solana or assets providing exposure to Solana under normal market conditions. It may also invest in other ETFs, including non-US cryptocurrency ETFs that offer similar Solana exposure.
- Staking Strategy: The fund intends to stake at least 50% of its Solana holdings to generate additional income and achieve capital growth. Specifically, the fund’s custodian will delegate a portion of its SOL to one or more validators, as determined by the advisor. Rewards will be paid in Solana and are subject to lock-up periods.
- Trading Fund Shares: Creation and redemption of shares are limited to authorized institutional investors, such as market makers and brokers, in large blocks known as Creation Units (each comprising at least 25,000 shares). Individual shares can be bought and sold through brokerage firms on national securities exchanges.
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Tax Treatment: Taxation as a Regular C-Corporation
Unlike most ETFs, this fund will not be taxed as a regulated investment company for US federal income tax purposes due to its limited holdings. Instead, it will be treated as a regular C-corporation. It’s important to note that C-corps face double taxation: profits are taxed at the corporate level, and dividends distributed to shareholders are taxed again at the individual income tax rate.
At the Fund Level
- Capital Gains Tax: When the fund sells or disposes of securities, accumulated gains are taxed at the fund level at applicable corporate tax rates (federal and state).
- Excise Tax: If the total market value of shares redeemed in a tax year exceeds the total market value of shares issued by more than $1 million, the fund may be subject to a 1% excise tax on the excess amount.
- Accumulated Earnings Tax: If the fund does not distribute sufficient profits to shareholders, it could face an additional 20% tax on retained earnings.
At the Investor/Holder Level
Taxation of Dividend Income
- Dividend Tax: If distributions come from current or accumulated earnings, they are taxed as dividends.
- Corporate Investors: May qualify for dividends-received deduction.
- Individual Investors: May qualify for long-term capital gains rates if holding period requirements are met.
Taxation on Share Sales or Redemption of Creation Units
Capital Gains:
- Held over 1 year: Long-term capital gains (lower tax rates).
- Held 1 year or less: Short-term capital gains (taxed as ordinary income).
Fee Structure
As per the registration documents, the fee structure includes:
- Advisory Fee: REX Advisers, LLC is entitled to an annual management fee of 0.75%, calculated daily based on the fund’s average net assets and paid monthly.
- Fund Administration Fee: Paid to Commonwealth Fund Services, Inc., calculated daily as a percentage of the fund’s average daily net assets and paid monthly. The specific rate was not disclosed.
- Financial Management and Fund Accounting Fees: Paid to U.S. Bank based on an annualized percentage of the fund’s total net assets. Exact rates were not specified.
What Impact Will This Have?
The approval of a Solana staking ETF signals a shift in regulatory attitude from cautious观望 to limited acceptance of crypto staking economies. This development sends two strong signals to the market:
- Emergence of a Compliance Framework: The SEC’s green light for staking-based products indicates a viable path for integrating crypto assets with traditional financial instruments. This could accelerate the approval of similar products, such as Ethereum staking ETFs.
- Boost in Market Confidence: Institutional investors generally show higher trust in compliant products compared to non-custodial crypto assets. This ETF may attract long-term capital from pension funds, mutual funds, and other institutional players.
Furthermore, the launch of this ETF is expected to strengthen Solana’s ecosystem fundamentals:
- Structural Increase in SOL Demand: With at least 80% of the fund’s assets directly allocated to SOL, significant buying pressure could emerge.
- Over 50% of Holdings Staked: An increase in the staking ratio raises the opportunity cost of holding SOL, potentially reducing circulating supply.
- Validation of Crypto Economic Models: The combination of staking mechanisms with traditional ETFs signifies mainstream acceptance of cryptocurrency economic models. This could channel more institutional funds into Solana’s staking market through compliant avenues, benefiting staking protocols within the ecosystem.
- Enhanced Decentralization: A higher staking ratio can contribute to a more robust and decentralized network for Solana.
Of course, the “REX-Osprey SOL+Staking ETF” prospectus also outlines several risks, including investment risks specific to SOL, regulatory uncertainties, broader digital asset industry risks, staking risks, liquidity risks, concentration risks, cybersecurity threats, and custody challenges.
Notably, the fund administrator, Commonwealth Fund Services, has simultaneously filed with the SEC for a “REX-OSPREY ETH + STAKING ETF.” The investment strategy for the proposed Ethereum staking ETF appears similar to the Solana product, leading market observers to believe that the successful launch of the Solana staking ETF could pave the way for an Ethereum equivalent.
Frequently Asked Questions
What is a staking ETF?
A staking ETF is an exchange-traded fund that invests in a cryptocurrency and actively participates in staking. Staking involves locking up crypto holdings to support the operations of a blockchain network, for which investors earn rewards. This type of ETF offers exposure to the asset's price and additional yield from staking.
How does the SOL staking ETF generate income?
The ETF generates income by staking a significant portion of its Solana (SOL) holdings with network validators. In return for helping secure the network, it earns staking rewards paid in additional SOL. This income is combined with potential capital appreciation from the underlying asset.
Who can invest in this ETF?
While the creation and redemption of large share blocks (Creation Units) are restricted to authorized institutional investors, individual shares of the ETF are available for purchase and sale by any investor through standard brokerage accounts on national securities exchanges.
What are the main tax implications for investors?
The fund is taxed as a C-corporation, leading to potential double taxation. Profits are taxed at the corporate level, and dividends distributed to shareholders are taxed again at the individual level. Investors selling shares will also incur capital gains taxes based on their holding period.
What risks are associated with this ETF?
Key risks include the volatility of SOL's price, regulatory changes affecting cryptocurrency or staking, the technical risks associated with staking (like slashing), liquidity risks, and the inherent risks of the broader digital asset industry.
Could this lead to similar ETFs for other cryptocurrencies?
Yes, the successful launch and operation of this Solana staking ETF could establish a regulatory precedent, making it easier for asset managers to propose and gain approval for staking ETFs based on other proof-of-stake cryptocurrencies like Ethereum (ETH).