REX-Osprey’s Cayman-Based ETF Avoids SEC Limitations on Staking
- REX-Osprey™ launched ESK ETF, the first U.S. 1940 Act fund offering Ethereum spot exposure and staking rewards via a Cayman-structured C-corporation. - The fund follows SSK Solana + Staking ETF ($300M AUM) and sidesteps SEC staking restrictions by avoiding grantor trust structures. - ESK's non-diversified approach concentrates in Ethereum's volatile ecosystem, exposing investors to smart contract risks and validator governance challenges. - Regulatory uncertainty, custody vulnerabilities, and liquidity c
REX-Osprey™ has introduced the ESK ETF, marking the first U.S.-listed 1940 Act fund to grant access to
The ESK ETF utilizes a C-corporation structure and Cayman Islands subsidiaries to bypass the standard 19b-4 SEC approval process. This legal setup allows the fund to avoid the limitations that prevent grantor trust ETFs from staking activities. While this approach is tax-advantageous for investors, it does impose corporate tax liabilities, resulting in a balance between regulatory adherence and tax efficiency. The fund’s holdings are heavily weighted toward the Ethereum ecosystem, which means investors face risks related to network instability, smart contract flaws, and validator management.
By leveraging Ethereum’s proof-of-stake protocol, ESK is exposed to certain risks. Staking involves locking up ETH for long durations, which can restrict liquidity during volatile markets. If validators control more than half of the network, there is a theoretical risk of attacks or payment disruptions. The fund’s concentrated investment strategy also increases price swings, as it invests a large share of assets in a limited number of issuers.
There are significant regulatory and operational uncertainties. The rapidly changing legal environment for crypto, including possible regulatory actions, could impact the fund’s functioning. Custody is another major concern: the fund’s digital assets are protected by private keys managed by custodians, and any compromise could lead to irreversible losses. The market’s speculative nature is further highlighted by potential sharp price changes and liquidity issues.
The debut of ESK signals a rising interest from institutions in crypto yield products. Bloomberg ETF analyst James Seyffart described the Cayman structure as an “innovative legal solution” that speeds up entry to the market. With both ESK and SSK preparing to trade on Nasdaq, the REX-Osprey approach may set a precedent for future staking ETFs, especially as IRS policies on staking taxation continue to develop.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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