The U.S. Securities and Exchange Commission (SEC) has recently approved spot Ethereum (ETH) Exchange-Traded Funds (ETFs). This decision follows extensive consideration and multiple delays. Currently, the approval only covers 19b-4 filings. The actual initiation of trading might take additional months. Issuers must still wait for the review of their S-1 applications, as noted by Bloomberg analyst James Seyffart.
The crypto industry has welcomed this decision as a progressive step, particularly following the approval of spot Bitcoin ETFs. Nevertheless, three experts in discussions with crypto.news have raised concerns about potential unintended consequences of spot Ether ETFs.
Centralization and Ether Dormancy Issues
Spot Ether funds differ significantly from their Bitcoin counterparts due to the underlying technologies of the blockchains. Bitcoin operates on a proof-of-work mechanism, which encourages miners to solve complex problems for block rewards. This setup, combined with the absence of smart contracts and a decentralized finance (DeFi) ecosystem, promotes the active sending and holding of Bitcoin.
Going to add here. Typically this process takes months. Like up to 5 months in some examples but @EricBalchunas and I think this will be at least somewhat accelerated. #Bitcoin ETFs were at least 90 days. Will know more soon.
— James Seyffart (@JSeyff) May 23, 2024
In contrast, Ethereum has always been at the forefront of the multi-billion dollar DeFi sector, even before transitioning to a proof-of-stake model. Ethereum is designed for on-chain deployment, making it fundamentally different.
Carlos Mercado, a data scientist at Flipside Crypto, suggests that keeping ETH in the funds without using it negates the asset’s inherent advantages. He likens it to hoarding gasoline without using it for its intended purpose. The recent removal of staking features from several Ethereum ETF proposals complicates this issue further. The SEC’s crackdown on staking services, such as those offered by Coinbase, has fueled further debate about the future of crypto staking in the U.S.
Tom McClean, a quantitative developer at Vega Protocol, points out that eliminating staking features from ETFs may reduce concerns about centralization. However, it does not solve the problem entirely. The design of these ETFs seems to be limited to buying, holding, and selling Ether, which risks large amounts of ETH remaining idle and unproductive.
Seeking Regulatory Clarity on Staking
On a positive note, McClean believes this development could drive a quest for clearer regulations on staking. Justin d’Anethan, Keyrock’s head of business development in APAC, suggests that the approval of these filings indicates a possible non-security status for Ether, which could alleviate concerns among investors and Ethereum stakeholders.
Although the SEC’s recent moves suggest a shift in how it views Ether as a financial instrument, the exact regulatory perspective remains somewhat ambiguous. This ambiguity calls for continued attention as stakeholders seek to understand the implications fully.