While headlines have celebrated the IRS and Treasury’s recognition of staking for ETFs, a deep-dive into the guidance reveals more operational flexibility than many realize.
The IRS permits trusts to adjust their liquidity reserves and utilize financing arrangements to facilitate redemptions. This is an unusual degree of flexibility within the normally rigid grantor trust framework.
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IRS Guidance Offers More Flexibility Than Many Realize
Analyst Greg Xethalis describes the guidance as being in the best interest of the trust beneficiaries. It means institutions can now manage staking without overstepping compliance limits.
- Single-Asset Requirement Limits Participation
A key nuance overlooked by many investors is that the relief applies only to single-asset trusts. Mixed-asset trusts, which hold multiple tokens in varying ratios, are largely excluded because staking rewards would alter the proportions of the assets.
Xethalis notes this appears intentional, reflecting a cautious approach to maintaining grantor trust compliance while enabling staking for the majority of single-asset funds.
- Independence and Slashing Protections
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The guidance requires that staking providers remain independent from the trust and its sponsor, though not necessarily from the custodian. Providers must also indemnify against slashing.
However, some ambiguity remains. The IRS does not clarify whether slashing liability lies with the provider, custodian, or sponsor, leaving operational responsibilities partially undefined.
Investors and fund managers must account for this nuance when evaluating staking strategies.
- Limits for Private and Non-Listed Trusts
Another important detail is that the relief does not extend to private trusts or those not listed on a National Securities Exchange (NSE). Networks used for staking must also be permissionless, reinforcing a focus on public, verifiable blockchain systems.
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These constraints underline the conservative and risk-conscious nature of the guidance.
Why These Details Matter
Xethalis’ insights reveal that, while staking is now legally and tax-recognized, operational nuances will influencehow ETFs and trusts deploy capital.
Investors should pay attention to liquidity flexibility and management options that preserve redemption rights. They should also consider single-asset restrictions that may influence product design and diversification.
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Other critical considerations include independent provider and indemnification requirements for risk mitigation, as well as the exclusion of private or non-listed trusts, which limits the scope of eligible staking products.
Understanding these overlooked elements is crucial for investors, asset managers, and fund sponsors seeking tax-compliant staking exposure that adheres to grantor trust regulations.
These nuances suggest that future staking-enabled ETFs will likely focus on single-token products and carefully structured operational setups.
Investors and institutions that grasp these details early will be better positioned to capitalize on staking yields amid existing regulatory constraints.
“…sounds like a win-win based on this,” ETF analyst Eric Balchunas remarked.
