The U.S. Securities and Exchange Commission (SEC) intensified its crypto oversight with two closed-door meetings on April 1. Officials met separately with BlackRock and the Crypto Council for Innovation’s Proof of Stake Alliance. The meetings focused on proposed crypto exchange-traded products (ETPs), staking structures, and operational models for future regulated crypto funds.
BlackRock Discusses In-Kind Redemptions and Crypto ETF Infrastructure
BlackRock attended a confidential session with the SEC Crypto Task Force to present its procedures regarding crypto ETP workflows. The firm explained the standard redemption process through cash withdrawals in standard ETP products subject to current regulatory frameworks. BlackRock suggested implementing models with in-kind redemptions as a solution for the technical requirements of crypto-based ETPs.
BlackRock senior executives who oversee regulatory affairs and members from ETF capital markets presented a document to SEC officials. The document explained how market participants and intermediaries execute ETP operations using the cash model. They explained structural evolutions supporting the transition to in-kind models while potentially providing operational improvements.
BlackRock uses operational workflow examinations to show regulators the benefits and risks of crypto fund mechanics. The company stressed that switching to in-kind models would reduce operational costs and advance investment transparency. Such a strategic evolution would create conditions for the U.S. to develop comprehensive regulations that govern cryptocurrency investment products.
Staking Models Enter Spotlight in SEC Meeting With Proof of Stake Alliance
The SEC conducted another meeting for the Proof of Stake Alliance members as part of the Crypto Council for Innovation. The participating members comprised representatives from a16z and Paradigm, Consensys and Alluvial, Lido Labs Foundation, and Marinade. The delegation studied elements of staking that might affect the development of staking-enabled crypto ETPs.
The agenda included an analysis of liquid staking, custodial staking, and delegated non-custodial models. The delegation members established service principles for staking-as-a-service that the SEC could use to evaluate validator operations. Proof-of-stake networks need proper regulatory oversight for user participation in financial products, which these standards attempt to establish.
Participants evaluated the effects of staking rewards and validator duties on ETP valuation and investor risk exposure. Based on the diverse staking models reviewed in the discussion, service providers and token holders established different relationships. The discussion highlighted that these factors directly impact the stability of the long-term existence of proof-of-stake asset-backed ETPs.
SEC Reviews Staking Models for ETPs
The April meetings reciprocate SEC interactions that took place on February 5, in which Jito Labs and Multicoin Capital representatives participated. Prior to this session, the representatives examined the technical and legal aspects of integrating staking into crypto ETPs. Jito Labs CEO Lucas Bruder and Multicoin Capital managing partner Kyle Samani led the meeting.
The representatives established that staking is the essential mechanism supporting proof-of-stake networks, including Ethereum and Solana. According to them, eliminating staking from ETPs would potentially reduce returns and diminish their functional value. The representatives displayed two frameworks linking investor liquidity features to staking activity to satisfy regulatory criteria.
Third-party validators allow partial staking under the Services Model structure while remaining free to redeem funds anytime. The Liquid Staking Token Model enables funds to obtain staking derivatives for added exposure. SEC representatives evaluate these suggestions while their crypto product assessment process transforms as their regulatory boundaries expand.
FAQs
What did BlackRock propose during its meeting with the SEC?
BlackRock introduced the concept of in-kind redemptions for crypto ETPs, aiming to increase efficiency in fund operations.
Who participated in the Proof of Stake Alliance meeting?
Members from firms including a16z, Paradigm, Consensys, Lido Labs Foundation, and Marinade joined the SEC discussion.
What was discussed regarding staking in ETPs?
The meetings covered liquid, custodial, and delegated staking models and how they could fit into crypto-based financial products.
Why is the SEC focusing on crypto ETPs?
The SEC is assessing technical and legal frameworks for allowing regulated crypto products while managing investor protection and market risk.
Are these meetings leading to regulatory changes?
While no rulings have been issued, the discussions reflect the SEC’s growing engagement with industry stakeholders on crypto ETFs.
Glossary
Crypto ETP: Exchange-traded product linked to digital assets like Bitcoin or Ethereum, allowing regulated market access to crypto exposure.
In-Kind Redemption: A fund redemption process where securities, not cash, are exchanged during ETF buybacks or investor exits.
Staking: A process in proof-of-stake blockchains where token holders lock assets to support network security and earn rewards.
Liquid Staking: A model allowing staked assets to remain accessible by using staking derivatives that preserve liquidity.
Validator: A participant in a blockchain network that confirms transactions and maintains network consensus in proof-of-stake systems.
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