Hong Kong's Securities and Futures Commission (SFC) is exploring the possibility of permitting staking, enabling investors in local Ethereum (ETH) ETFs to earn passive income. By staking tokens on the Ethereum network to validate transactions, investors can generate rewards.
Staking involves token holders locking their crypto assets for a certain period, during which they earn a percentage of the staked tokens as a reward. This process is supported by various third-party staking services tailored to user needs. Essentially, staking allows investors to earn additional income while retaining their cryptocurrencies.
This approach by Hong Kong stands in contrast to the stance of the U.S. Securities and Exchange Commission (SEC), which views staking as an investment contract and a breach of securities laws. The global adoption of spot ETF staking could prompt further discussions on this practice in the United States.
Staking’s role in the U.S.
Coinbase has been actively advocating for staking in the U.S., challenging the SEC's position on its legality. Coinbase argues that core staking should not be classified as a security because it doesn't involve a monetary investment, and the opportunity cost of staking isn't an investment.
According to Coinbase, since users receive rewards as compensation for services rendered, staking does not create an "expectation of profit" and involves routine maintenance rather than traditional investment activities.
In February, crypto.news reported that 55% of crypto investors in Singapore had staked their assets through centralized exchanges, reflecting strong confidence in staking. This trend is also evident in other major crypto markets globally.
Recently, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21), signaling a welcoming stance towards the crypto industry. Additionally, the SEC approved spot Ethereum ETFs, which drove the price of Ethereum (ETH) to over $3900 at the time of writing.
Despite these developments, the SEC's position on staking has led many U.S.-based companies, such as Fidelity Investments, to hold off on including staking in their upcoming Ethereum ETFs.
