Background and SEC Regulatory Logic
In March 2025, the U.S. Securities and Exchange Commission (SEC) once again delayed its decision on the approval of several spot Ethereum ETFs submitted by institutions including Fidelity and VanEck. This decision continues the SEC’s “cautious tradition” since 2024—while the Bitcoin spot ETF took nearly a decade to gain approval, the Ethereum ETF faces similar challenges such as disputes over its security classification, staking compliance, and market manipulation risks.
In its delay announcement, the SEC emphasized the need for additional time to assess whether Ethereum’s Proof-of-Stake (PoS) mechanism might lead to risks of token concentration and questioned whether its price could be easily manipulated by a few entities. Notably, Fidelity’s recently revised proposal includes a new clause that “allows Ethereum staking” in an effort to boost the ETF’s appeal through staking rewards. However, the SEC has yet to provide a clear response on this point. This controversial issue sharply contrasts with the Bitcoin ETF approval logic, which has proceeded relatively smoothly due to its Proof-of-Work (PoW) mechanism and absence of a staking model.
Market Impact and Liquidity Divergence
The SEC’s decision to delay has had a short-term negative impact on market sentiment. However, in the long term, this delay may accelerate the compliance process. Platform data shows that institutional investors are shifting funds towards the approved Bitcoin ETFs and compliant staking services, causing the on-chain Ethereum staking rate to drop from 28% to 22%.
This divergence in liquidity exposes a structural contradiction in the crypto market: compliant capital is concentrating on leading assets while liquidity for mid-to-small cap tokens continues to shrink. For example, the Total Value Locked (TVL) of Layer 2 projects within the Ethereum ecosystem has fallen from a peak of $12 billion to $7.8 billion, with some projects turning to Bitcoin-compatible cross-chain protocols to attract funds. Should the Ethereum ETF remain unapproved for an extended period, its narrative as a “decentralized finance infrastructure” may be weakened, thereby impacting the ecosystem’s innovative vitality.
Compliance Breakthroughs and Institutional Strategies
Despite the SEC’s cautious stance, the industry is exploring alternative paths. If approved, Fidelity’s “staking-based ETF” proposal would become the first compliant product allowing held Ethereum to be staked, with an expected annual yield of 4%–6%. Additionally, institutions such as BlackRock are developing hybrid staking models, placing part of their assets in compliant platforms to mitigate regulatory risks.
The adjustment in the regulatory framework also provides new opportunities. The SEC’s newly established cryptocurrency task force has proposed a “cross-border sandbox” initiative, permitting international projects to conduct limited business trials in the U.S., which could introduce foreign liquidity into the Ethereum ETF. At the same time, SEC Chairman nominee Paul Atkins—nominated by the Trump administration—is inclined to support innovation; his eventual appointment could potentially break the current approval deadlock.
Ethereum ETF Future Outlook and Key Milestones
The market should focus on two key milestones:
- May 23, 2025: The final approval deadline for the VanEck Ethereum ETF, the outcome of which will serve as a barometer for the industry.
- Q2 2025: The SEC’s cryptocurrency task force plans to release regulatory guidelines for PoS assets, which may define the compliance boundaries for staking.
If the Ethereum ETF is eventually approved, its fee competition will reshape the market landscape. Currently, management fees in proposals from institutions like BlackRock and Fidelity are concentrated between 0.15% and 0.25%, significantly lower than the 2.5% fee of the Grayscale ETH Trust. However, if staking functionality is limited, the advantages of an Ethereum ETF over direct holding may be greatly diminished, prompting institutional funds to shift towards highly liquid platforms such as JuCoin.
Ultimately, the SEC’s cautious stance reflects the necessary growing pains in merging traditional finance with the rules of the crypto ecosystem. In the interplay between regulation and innovation, the success or failure of the Ethereum ETF not only concerns a single asset but will also define the regulatory paradigm for next-generation financial infrastructure.
Neason Oliver
