Treasury and IRS Unlock Staking Rewards for Crypto ETPs

In a significant development, the United States Department of the Treasury and the Internal Revenue Service (IRS) have issued new guidance that allows crypto exchange-traded products (ETPs) to stake digital assets and share the resulting staking rewards with retail investors. This policy change, announced by Treasury Secretary Scott Bessent, is expected to increase investor benefits, drive innovation, and solidify America's position as the global leader in digital asset and blockchain technology.

The new rules apply to crypto ETPs that hold or track major digital assets such as Ethereum (ETH), Cardano (ADA), and Solana (SOL), or any other token that can be staked and meets regulatory standards. This move builds on the IRS's previous Revenue Ruling 2023-14, which outlined the tax treatment of staking rewards.

Crypto ETPs are regulated investment vehicles similar to exchange-traded funds (ETFs) that provide investors with exposure to digital assets without the need to hold them directly. Staking, on the other hand, is the process of locking up digital assets on a blockchain to help validate transactions in return for periodic rewards, typically paid in the same token. This new guidance allows crypto ETPs to directly stake eligible digital assets on proof-of-stake (PoS) networks and distribute the resulting rewards to their investors, all within a clear, regulated, and tax-compliant framework.

The Treasury's announcement comes three months after the Securities and Exchange Commission (SEC) clarified that certain liquid staking activities do not constitute the sale of securities, further paving the way for the integration of staking into regulated investment products.