With the election of Donald Trump, a crypto-friendly regulator could replace SEC Chairman Gensler, opening the door to staking rewards for spot ETH ETFs.
With President-elect Donald Trump’s landslide victory, it appears that Securities and Exchange Commission (SEC) Chairman Gary Gensler’s days are numbered.
Market and political observers expect Trump to appoint a new committee chair, a shift that could enable spot ETH ETFs to offer staking rewards, boosting the price of Ether (ETH).
Trump has made many big promises to the U.S. cryptocurrency industry. One of them was to fire Gensler on the "first day" of the new administration. But that's easier said than done.
“The president has the power to appoint and remove certain individuals, and that extends to SEC commissioners,” Andrew Rossow, an online and digital media attorney, told Cointelegraph.
However, he said, “it’s a little ambiguous whether the president can just fire the SEC chairman.”
Trump would have to show a legitimate reason for firing Gensler, such as dereliction of duty, inefficiency or malfeasance. Firing Gensler outright would be unprecedented and could also mean a political backlash for the Trump administration.
Rossow said Trump may not be deterred by potential political consequences because the digital asset industry is generally dissatisfied with Gensler's "enforcement and regulation" approach. In addition, Trump's combative political style shows that he has little respect for systemic norms.
Carol Goforth, a professor at the University of Arkansas School of Law who specializes in business associations and securities regulation, told Cointelegraph that there is a quicker path to removing Gensler from his position without having to kick him out of the SEC: “The president can always demote the chairman and replace him with one of the other current commissioners. That could happen immediately.”
Rossow said the president has the authority to transfer the chairmanship between commissioners through powers defined in Reorganization Plan No. 10. He said Trump "may simply choose to transfer the chairmanship to another SEC commissioner on the basis that the faithful exercise of his executive powers is constitutional."
However, “in most cases, SEC chairs tend to resign during their terms when there is a change in the White House,” Rossow added.
Goforth noted that Gensler’s resignation would complicate the appointment of a new SEC chairman because it would require Senate approval, which involves a longer and potentially contentious process of hearings and legislative wrangling.
However, she said even Senate approval would be "relatively easy for President Trump to achieve" because Republicans have already won control of the legislature.
Trump has made it clear that he wants to appoint a crypto-friendly SEC chairman. One of the SEC’s restrictive measures is to consider staking as a security product, which has hindered the development of the U.S. crypto industry.
Hopes were high that the new SEC chairman would halt ongoing enforcement actions and open the door for ETF issuers to offer collateral services.
Ethereum staking could boost struggling spot ETFs
Ethereum prices have been underperforming market expectations. There are many reasons for Ethereum’s underperformance compared to Bitcoin or its direct competitor Solana. One factor is the poor performance of spot Ethereum ETFs since their launch.
Market observers expect the spot Ethereum ETF to replicate the success of the spot BTC ETF. BlackRock’s spot Bitcoin ETF received inflows of over $1.1 billion on November 7, bringing the total assets under management (AUM) of BTC ETFs to over $25 billion.
On November 7, spot Bitcoin ETFs received a total inflow of $1.34 billion. Source: CoinGlass
In contrast, BlackRock’s iShares Ethereum Trust ETF recorded one of its highest inflows on Nov. 8, with inflows of nearly $86 million and total AUM exceeding $8 billion. However, this boost did not offset outflows from Grayscale’s Ethereum Trust ETF, which continued to hamper its overall momentum.
On November 8, inflows into spot Ethereum ETFs totaled $85.9 million. Source: CoinGlass
Federico Brokate, head of U.S. operations at crypto ETF issuer 21Shares, told Cointelegraph that “ETH ETF flows have been somewhat disappointing.” However, he remained optimistic, saying, “We are seeing steady demand for Ethereum; however, we expect this demand to accelerate,” he said. “Institutional interest is expected to grow as confidence grows around regulatory clarity for ETH as a commodity.”
Brokate said that the inability of ETF investors to participate in staking is a major factor in the poor performance of spot ETH ETFs. "Staking can be seen as a source of passive income for investors, so for the crypto-native or crypto-related population that we expect to be early adopters, they may have been on the sidelines so far."
Tom Wan, a data researcher at Onchain and former 21Shares analyst, shared on X that he believes that a spot Ether ETF could better compete with spot BTC ETFs and attract capital inflows by promising passive income through staking to attract investors.
The structure for offering staking rewards may vary, depending on the regulatory and operational setup. ETF issuers can charge staking rewards, effectively allowing them to get rid of management fees and market their products this way.
Currently, fees charged by ETH ETF issuers range from 0.15% to 0.25%, with Grayscale's ETHE being significantly higher at 2.5%. According to Wan, even staking 25% of assets under management would generate enough returns to fully offset these fees. Wan said the prospect of a free or low-cost ETH ETF could be attractive to institutional investors, especially retail investors.
Another possibility is for ETF issuers to provide indirect staking benefits to investors. Investors would not directly stake their assets but would benefit from the staking rewards generated by the ETF’s pooled assets.
Wan noted that even modest staking yields could have an impact. “If an issuer offers a 0% management fee plus a yield of about 1%, it will become a competitive alternative to a BTC ETF.” While a 1% yield may seem insignificant, he said “the yield could be a meaningful differentiator.” The current interest rate for ETH staking is about 3.5% annual percentage yield (APY), depending on the specific staking method chosen.
Whichever model is chosen, ETF issuers have enough flexibility to attract investors. Wan concluded, “Enabling staking yield could be a game changer.”
“A key factor holding back an ETH ETF from reaching its potential is a lack of collateralization. For institutional investors who may be new to crypto, Bitcoin is already a new asset — and Ethereum is even newer. To attract inflows, an ETH ETF needs a clear differentiator that is easy for investors to understand.”
Investors still view Ethereum as a vague concept. Brokate said that the massive adoption of spot BTC ETFs is related to the branding of Bitcoin by institutional investors. "Ethereum's brand awareness is lower than Bitcoin. Bitcoin is the flag bearer of the industry and the narrative is simpler."
Allowing staking on an ETH ETF could be a powerful catalyst for institutional and retail adoption. A change in SEC leadership would mark a major step for the cryptocurrency industry, especially for the price outlook for Ether, as altcoin ETFs for crypto assets like XRP or SOL have yet to be approved.
The new SEC chairman can’t change everything about staking
The SEC is currently concerned that staking is like an investment contract, where profits are generated not only from the assets themselves but also through a structured process involving the efforts of third parties. This interpretation could require staking services to comply with securities regulations, including registration, disclosure, and investor protection.
While the crypto community hopes a new SEC chair will take a more relaxed approach, Goforth warned against assuming regulation would shift quickly, even with a new, potentially crypto-friendly SEC chair at the helm.
The SEC chairman often “sets the tone for the commission, but they can’t force policy changes alone,” she said. Commissioners can override the chairman’s decisions and allow enforcement actions to proceed.
Under Gensler’s leadership, the SEC has taken enforcement actions against several U.S. crypto companies that provided staking services.
Some companies, such as cryptocurrency exchange Kraken, chose to settle rather than face a protracted legal battle, agreeing to pay a $30 million fine on February 9, 2023. Others, such as U.S.-based cryptocurrency exchange Coinbase, decided to take their cases to court.
Goforth said the SEC chairman "can't unilaterally cancel ongoing cases." They need to gather a majority of commissioners to agree and have the enforcement division dismiss the cases. Still, Goforth said the most likely path is to reach a settlement on terms favorable to the defendant's business to remove the case from the court's docket.
Goforth also pointed out that the Department of Justice can take criminal action under securities laws regardless of the SEC’s position. If there is a contentious case with the plaintiff, the court can intervene without the SEC’s approval, and even private individuals who have lost money through staking can file a class action lawsuit against the exchange.
Goforth said all the SEC can do is dictate what conduct can be brought before a court; its analysis is not binding on the courts, which ultimately decide what is legal.
