Hong Kong SFC Issues Regulatory Guidelines for Staking Services
On April 7, the Hong Kong Securities and Futures Commission (SFC) announced that it has officially issued regulatory guidelines regarding the provision of staking services to licensed exchanges in Hong Kong. HashKey Exchange also announced yesterday that it has become one of the first exchanges permitted to offer staking services.
(Background: The introduction of staking functionality for Hong Kong Ethereum spot ETFs may happen as early as the end of the year. Will the U.S. follow suit?)
(Supplementary background: SEC confirms receipt of Grayscale’s application seeking to open staking functionality for Ethereum spot ETFs, ETH/BTC rebounds.)
New Developments in Hong Kong’s Virtual Asset Regulation
Recent advancements in Hong Kong’s virtual asset regulation were highlighted in an announcement by the SFC on April 7. The SFC stated that it has officially issued regulatory guidelines to licensed virtual asset exchanges regarding their provision of staking services. Additionally, it provided guidance for regulated virtual asset funds (such as Ethereum spot ETFs) on participating in staking activities, aiming to promote the development of Hong Kong’s cryptocurrency ecosystem. The SFC noted in its press release:
The Securities and Futures Commission (SFC) today issued regulatory guidelines to licensed virtual asset trading platforms regarding the provision of staking services, as well as guidelines for SFC-recognized funds investing in virtual assets (virtual asset funds) concerning their participation in staking activities.
In formulating its regulatory approach, the SFC recognized the potential benefits of staking in enhancing the security of blockchain networks, as well as the opportunity for investors to earn returns from virtual assets in a regulated market environment. The latest guidelines allow virtual asset trading platforms to expand the scope of their products and services, which is one of the five pillars outlined in the SFC’s “ASPIRe” roadmap aimed at developing Hong Kong’s virtual asset ecosystem.
In this regard, SFC CEO Ashley Alder also stated:
Expanding the scope of regulated services and products is crucial for maintaining the healthy development of Hong Kong’s virtual asset ecosystem, but this must be conducted within a regulated environment to ensure the security of customers’ virtual assets remains a top priority within the compliance framework for providing related services.
HashKey Exchange Approved to Offer Staking Services
In this context, Hong Kong licensed exchange HashKey Exchange also revealed yesterday that it has received SFC approval to become one of the first exchanges permitted to offer staking services. HashKey Exchange’s Managing Director Terence Pu stated:
HashKey Exchange has built a staking service system that meets regulatory requirements and is the first to offer ETH staking services for spot ETFs, actively advancing to provide staking services to all customers. In the future, investors will not only be able to hold Ethereum ETFs to earn staking returns but also directly hold ETH and earn additional returns through our staking services.
When Will the U.S. Approve?
Currently, the U.S. has yet to approve the staking applications related to Ethereum spot ETFs. However, in February of this year, the U.S. Securities and Exchange Commission (SEC) confirmed receipt of the relevant applications submitted by Grayscale, intending to open staking functionality for its spot Ethereum ETF.
The delay in U.S. approval can be traced back to the stance of the SEC under the Biden administration, led by Gary Gensler, where there were still concerns regarding the regulatory issues related to staking (such as whether it constitutes a securities action). For example, when the SEC filed against Coinbase in June 2023, it claimed that providing staking services through the platform could violate securities laws, which has influenced the regulatory approach towards Ethereum ETFs.
However, following Trump’s presidency, there has been a notably friendly attitude towards cryptocurrency regulation, leading analysts to suggest that U.S. approval of Ethereum spot ETF functionalities is merely a matter of time.
What Are the Implications of Staking Approval for Ethereum Spot ETFs?
Although the influence of Hong Kong’s cryptocurrency ETF market is significantly smaller than that of the U.S., the recent approval for staking on Ethereum spot ETFs in Hong Kong may exert pressure on U.S. regulatory progress. Once approved, it is expected to drive up the price of ETH.
After all, the staking functionality can provide an additional source of income for ETF investors, making it more attractive for institutional investors (such as pension funds and hedge funds) to opt for investment products that generate stable cash flow, thereby increasing demand for Ethereum ETFs.
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