Original title: "SEC postpones the pledge of Ethereum spot ETFs, "ETH good news disappears" may rebound as soon as June"

Original author: 0xJigglypuff, dynamic zone trend BlockTempo

The Securities and Exchange Commission (SEC) yesterday (14) proposed changes to the rules for allowing cryptocurrency trading platform trading funds (ETFs) to stake and physical (In-kind) subscription and redemption for multiple applications (14). The SEC decided to postpone it to gain more time for evaluation. The decisions originally scheduled to be made in mid-April have been postponed until early June this year.

Range of impact

Sherry R. Haywood, Assistant Secretary of the SEC, wrote in a document about the VanEck Encrypted ETF. This shows that regulators are still highly cautious about these innovative mechanisms involving crypto-derived financial commodities.

The Committee considers that it is appropriate to designate a longer period to take action on the proposed rule changes so that sufficient time is given to consider the rule changes and the problems it arouses.

Mainly affected are the two Ethereum-related investment products under Grayscale Grayscale: Grayscale Ethereum Trust ETF and Grayscale Ethereum Mini Trust ETF.

On February 14 this year, New York Securities Trading Platform Arca (NYSE Arca) submitted a rule change application for these two trusts, hoping to allow them to pledge their Ether to earn additional income for investors. The results were originally available on April 17, but are now postponed to June 1.

The changes to the VanEck Bitcoin Trust (HODL) and VanEck Ethereum Trust (Trading Code HODL) and VanEck Ethereum Trust (Apply for Physical Subscription and Redemption) submitted by Chicago options trading platform BZX (Cboe BZX) have also been delayed. The application target allows these two ETFs to adopt the "physical subscription and redemption" mechanism. The SEC originally had to make a decision before April 19, but it was delayed to June 3.

In addition, the decision on the physical redemption mechanism of WisdomTree Bitcoin Fund was also delayed to June 3.

Why are pledges and physical redemption key?

"Staking" is a core function of Ethereum and other uses Proof-of-Stake (PoS) for Proof-of-Stake, PoS. Holders can lock (staking) their tokens to obtain verification blocks and receive corresponding rewards. If the Ethereum spot ETF can be added to the staking function, it means that the benefits generated by the staking can be distributed to investors. ETFs with interest are very attractive to investors.

However, the introduction of pledges has also brought more complex regulatory issues, such as the nature of pledge returns, insurance disclosure, and ETF structure, which requires a longer period of careful evaluation by the SEC.

"Practice subscription and redemption" is a common operating model in the ETF market. Especially after the US Bitcoin spot ETFs were approved in large quantities at the beginning of this year, the importance of this mechanism has been emphasized by the market. Compared with the current Cash Create/Redeem, physical subscription and redemption allow APs to directly exchange Bitcoin or Ether for ETF shares, or exchange ETF shares back to Bitcoin or Ether.

This model is usually considered to be more efficient and less transactional, which can reduce tracking errors and has a more competitive market, but for cryptocurrencies with high volatility, the process of physical delivery, custody risks, and potential impact on market liquidity are also links that the SEC must carefully consider.

Market expects Ethereum to fail

The market was originally looking forward to the Ethereum spot ETFs that added the pledge function. However, even if we entered the Trump era, the authorities chose to face uncertainty more cautiously in the face of complex financialization of cryptocurrency commodities. The overall situation has significantly cooled down compared to the approval of multiple Bitcoin spot ETFs in January this year.

The main reason may be whether the Ether itself mechanism may be classified as a securities, and the complexity of pledge and supervision brought about by the PoS mechanism.

From the beginning of February when the market expects Ethereum to have pledge function, Ethereum prices have been cut in half. The initial optimism may have mixed with the existence of spot ETFs impacting the market, and the recent pessimism has also reflected the failure of this expectation. If we want to return to the price and market in February, the pledge of spot ETFs and Ethereum reform may be indispensable.

Compared with uncertain supervision, Ethereum has also been undergoing foundation reforms and Pectra upgrades recently. The upgrade is currently scheduled to be launched on May 7 and may be postponed again. However, overall, Ethereum may have to wait until June or wait for changes in the overall economy to show signs of a sharp rebound.