CoinShares Plans for Solana Staking ETF, Yet Experts Issue a Cautionary Note of Complexity
The world of cryptocurrency continues to evolve, and one of the latest developments is the emergence of staking ETFs on the Solana blockchain. These exchange-traded funds (ETFs) allow investors to earn passive income through staking rewards, potentially enhancing returns compared to non-staking ETFs.
Currently, Solana-based funds have an Assets Under Management (AUM) of $2.4 billion, which is only 8.7% of the equivalent total for Ethereum funds. However, the potential benefits extend beyond passive income. Staking may enhance Solana's network security by locking up more SOL tokens, potentially supporting the token price by reducing circulating supply. Furthermore, staking ETFs democratize access to staking, making it easier for traditional investors to participate in the Solana staking ecosystem.
However, staking ETFs also introduce significant operational and market risks, regulatory uncertainties, and tax complexities. For instance, slashing risks—penalties applied for validator misbehavior or downtime—can lead to losses. Smart contract vulnerabilities, security risks, and illiquidity during staking lock-up are other potential issues. Additionally, increased fees and complexity, tax complications, redemption risks, and regulatory uncertainty are factors that investors must carefully consider.
James Harris, Group CEO of DeFi platform Tesseract, believes that staking ETFs will simplify access to protocols such as Ethereum and Solana, which currently offer yields of between 7% and 8%. Most staking ETFs ensure that enough of its holdings are not staked to account for redemption risks.
The main driver of performance for staked Solana ETFs is the underlying cryptocurrency, SOL. Digital asset manager CoinShares has submitted an S-1 form for a Solana Staking ETF, intended to be listed on Nasdaq. The CoinShares Solana Staking ETF will hold SOL and stake a portion of its holdings, with BitGo as the custodian and staking partner.
The potential risk for the CoinShares Solana Staking ETF is that it may not be able to meet excessive redemption requests in amounts that are greater than the portion of the Trust's SOL that remains un-staked. The past month has seen record inflows into ETH ETFs, growing by $5.24 billion between July 1 and August 1.
Bryan Armour, Director of ETF & Passive Strategies at Morningstar, does not anticipate that staking alone will significantly impact institutional demand for Solana ETFs. However, he expects that some redemption issues for staking ETFs could impact their market makers. Institutional demand for staking ETFs is increasing as investors seek yield without the operational complexity of staking directly.
Several other companies, including BlackRock, Fidelity, Grayscale, and 21Shares, have recently filed applications to add staking to their existing Ethereum ETFs. Invesco Galaxy has also filed an application for its own Solana staking ETF within the past week. The Rex-Osprey Solana + Staking ETF launched last month and has assets under management of $137 million.
It's important to note that ETF redemptions settle within one day, so a staked ETF cannot stake its entire portfolio and still meet redemptions. Un-staking SOL from a staked ETF can take anywhere from hours to several days, with an average time of two to three days.
In conclusion, staking ETFs on Solana offer the potential for enhanced returns and network benefits, but also introduce significant operational and market risks, regulatory uncertainties, and tax complexities that investors must carefully consider before investing.
- The world of cryptocurrency continues to evolve, with the emergence of staking ETFs on the Solana blockchain being one of the latest developments.
- These staking ETFs allow investors to earn passive income through staking rewards, potentially enhancing returns compared to non-staking ETFs.
- As of now, Solana-based funds have an Assets Under Management (AUM) of $2.4 billion, which is only 8.7% of the equivalent total for Ethereum funds.
- Staking may enhance Solana's network security by locking up more SOL tokens, potentially supporting the token price by reducing circulating supply.
- These staking ETFs democratize access to staking, making it easier for traditional investors to participate in the Solana staking ecosystem.
- However, staking ETFs also introduce significant operational and market risks, regulatory uncertainties, and tax complexities.
- Slashing risks, smart contract vulnerabilities, security risks, illiquidity during staking lock-up, increased fees and complexity, tax complications, redemption risks, and regulatory uncertainty are factors that investors must carefully consider.
- James Harris, Group CEO of DeFi platform Tesseract, believes that staking ETFs will simplify access to protocols such as Ethereum and Solana, which currently offer yields of between 7% and 8%.
- The main driver of performance for staked Solana ETFs is the underlying cryptocurrency, SOL, with the CoinShares Solana Staking ETF being one of the planned Solana staking ETFs, intended to be listed on Nasdaq.
