U.S. Treasury Grants Legal Path for Crypto ETFs to Stake Digital Assets and Share Rewards

New IRS guidance allows ETPs and trusts to stake digital assets while remaining tax-compliant.

Safe harbor rules define strict custodial, liquidity, and reporting standards for staking eligibility.

The policy clears major legal hurdles, enabling institutional adoption of staking-based crypto products.

The U.S. Treasury and Internal Revenue Service (IRS) have issued new guidance allowing exchange-traded products (ETPs) and trusts to stake digital assets while distributing staking rewards to investors

Announced by Treasury Secretary Scott Bessent, the framework introduces a safe harbor under Revenue Procedure 2025-31, marking the first time regulated funds can engage in staking without jeopardizing their federal tax status

The move provides legal and tax clarity that institutions have long awaited, establishing defined parameters for compliant participation in proof-of-stake (PoS) networks such as Ethereum and Solana.

New Safe Harbor Framework for Staking

The new policy outlines five specific conditions that ETPs and trusts must meet to qualify for the safe harbor. These include holding only one type of digital asset and cash, using an approved custodian to manage private keys, and maintaining SEC-approved liquidity policies to ensure redemption even with staked assets. In addition, funds must keep independent arrangements with staking providers and restrict activities to holding, staking, and redeeming assets.

According to Consensys lawyer Bill Hughes, these measures eliminate the uncertainty that had previously discouraged fund sponsors and custodians from incorporating staking yield into regulated investment vehicles. The IRS further clarified that staking rewards will be treated as ordinary income at the time of receipt, and each ETP must report earnings transparently to investors.

Institutional Access and Market Compliance

Industry observers said the safe harbor removes one of the most significant legal obstacles for institutional staking. Asset managers had long avoided staking due to unclear tax implications and the risk of losing qualified trust status. With this update, regulated products can now integrate staking into their portfolios while adhering to federal compliance standards.

The guidance also aligns tax recognition with ongoing SEC liquidity and disclosure requirements. This coordination ensures that staking within regulated products follows the same reporting rigor as traditional investment activities. As Hughes noted, the framework converts staking from a potential compliance risk into a defined, institutionally viable practice.

Expanding Institutional and Retail Participation

Treasury Secretary Bessent said the update enhances investor benefits and strengthens U.S. leadership in digital asset innovation. Market analysts expect the policy to accelerate approval timelines for Ethereum-based ETPs and other PoS products

Several financial institutions are now expected to design staking structures that satisfy operational and audit standards while remaining transparent to retail investors. The IRS introduced the guidance after receiving multiple inquiries from trusts seeking tax eligibility clarity

Despite recent leadership changes within its crypto division, the agency has not indicated any disruption to policy execution. The update represents a significant regulatory step toward incorporating staking yields within compliant financial instruments traded on national securities exchanges.

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