VanEck Rethinks BNB Staking ETF Amid Regulatory Concerns

VanEck Shelves BNB Staking Plans for ETF Amid Regulatory Scrutiny

In a surprising turn, asset manager VanEck has retreated from its initial plans to incorporate asset staking within its proposed spot BNB exchange-traded fund (ETF). This decision arises despite the firm's provision of staking opportunities within its recently launched Solana (SOL) ETF.

In an updated S-1 filing submitted to the U.S. Securities and Exchange Commission (SEC) on November 21st, VanEck stated that "the Trust will not employ its BNB in Staking Activities and accordingly will not earn any form of staking rewards or income of any kind from Staking Activities" upon its listing. The filing further cautions that "there can be no assurance that the Trust will engage in any Staking Activities" in the future either.

The firm acknowledged that forgoing staking could cause the ETF's performance to lag behind the returns of directly holding BNB (BNB), noting that investors would miss out on potential staking rewards. This development follows VanEck's initial filing for a spot BNB ETF in May, which suggested the possibility of staking a portion of the ETF's assets through trusted staking providers. Earlier this month, VanEck also launched the U.S.'s third Solana (SOL) ETF, offering staking yields to investors.

VanEck Hints at BNB's Regulatory Challenges

In the updated filing, VanEck distanced itself from potential staking endeavors, stipulating that any future staking activities would be conducted through third-party "Staking Services Providers." Furthermore, the company emphasized that there is no guarantee that any staking of ETF assets will ever occur, and if such activities were to be pursued, a prospectus would be filed with the SEC beforehand.

"The Trust is not permitted to engage in Staking Activities, which could negatively affect the value of the Shares," the filing states.

While the filing stops short of explicitly stating the rationale for its cautious stance on BNB staking, it implies concerns about regulatory hurdles. A section of the filing explicitly states that a determination by the SEC that BNB constitutes a security could adversely impact the value of the shares and potentially lead to the termination of the trust.

VanEck emphasizes that "the test for determining whether a particular digital asset is a 'security' is complex and difficult to apply, and the outcome is difficult to predict." The fund manager "acknowledges that BNB may currently be a security, based on the facts as they exist today, or may in the future be found by the SEC or a federal court to be a security."

In such a scenario, VanEck retains the option to dissolve the ETF – either autonomously upon determining that BNB is a security or following a determination by the SEC or a federal court. "For so long as the Sponsor believes there to be good faith grounds to conclude that the Trust’s BNB is not a security, the Sponsor does not intend to dissolve the Trust on the basis that BNB could at some future point be determined to be a security," the filing explains.

BNB's History with the SEC

As VanEck noted, in 2023, the SEC initiated lawsuits against crypto exchange Binance, its US-based competitor Coinbase, and Kraken, alleging the facilitation of trading in unregistered securities. The regulator classified 68 digital assets as securities at the time, including BNB. However, in early July of the previous year, a US federal court ruled that secondary sales of the BNB token did not constitute security transactions.

The question of whether staking and cryptocurrencies utilizing it fall under securities law has been a subject of ongoing debate. In late May, the SEC's Division of Corporation Finance issued a statement asserting that "Protocol Staking Activities," such as cryptocurrencies staked in a proof-of-stake blockchain, "don't need to register with the Commission transactions under the Securities Act," or fall within "one of the Securities Act's exemptions from registration."

Nevertheless, this statement did not definitively resolve the debate. Caroline Crenshaw, the sole commissioner who opposed the guidance at the time, argued that it "fails to deliver a reliable roadmap for determining whether a staking service" constitutes an investment contract under securities laws.