Key Takeaways:
Morgan Stanley filed an amended S-1/A registration statement with the SEC on June 18 for its Ethereum Trust, adding staking provisions that would let investors earn yield on Ether through a regulated trust structure.
The filing, the first by a major US bank to embed staking in an Ethereum trust product, enables the trust to delegate Ether to validators on the Ethereum network, generating rewards that accrue to shareholders, according to the prospectus. The trust is structured as a Delaware statutory trust and will issue shares representing fractional ownership of Ether held by the trust's custodian.
The product builds on Morgan Stanley's existing Bitcoin trust but adds the yield-generating component unique to proof-of-stake networks. Staking rewards on Ethereum currently yield about 3% to 4% annually, based on network data from Beaconchain, offering institutional investors a return stream absent from spot-only crypto products. The trust intends to stake a portion of its Ether holdings through third-party staking providers, with the specific delegation strategy and fee structure to be disclosed in subsequent filings.
The move could unlock billions in institutional demand for Ethereum by providing a regulated pathway to staking yield, a feature pension funds and endowments have sought before allocating to digital assets. BlackRock and Fidelity, which offer Ethereum ETFs without staking, may face pressure to follow suit as the SEC shows greater comfort with staking in registered products. Grayscale Investments, which operates the largest Ethereum trust with about $5 billion in assets under management, does not currently offer staking to shareholders of its Ethereum Trust (ETHE).
The filing comes as the SEC has approved several crypto products this year, a shift from prior enforcement actions that classified staking services as unregistered securities under the Securities Act of 1933. In 2023, the SEC charged Kraken with offering unregistered staking services, resulting in a $30 million settlement and the shutdown of the exchange's staking program for US clients. The Morgan Stanley trust's structure, which uses a registered offering framework, may provide a template for other issuers seeking to offer staking within SEC guidelines.
The staking provisions in the Morgan Stanley trust also differentiate it from spot Ethereum ETFs approved in 2024, which the SEC barred from including staking due to concerns about the classification of staked assets. The trust's S-1 registration, rather than a 19b-4 exchange rule filing, may offer a different regulatory pathway that the SEC finds more acceptable for staking integration. This structural distinction could prove important as asset managers seek to offer yield-bearing crypto products within US securities law.
The inclusion of staking in a regulated trust product could also affect Ethereum's supply dynamics. Staked Ether currently accounts for about 27% of the total ETH supply, according to Dune Analytics, reducing circulating supply and creating a natural buyer for validators. A regulated trust that stakes its holdings would add to this locked supply pool, potentially supporting Ether prices over the long term as institutional inflows increase.
Industry participants view the Morgan Stanley trust as a bellwether for broader regulatory acceptance of staking in traditional finance products. If approved, the trust would trade on a national securities exchange, with the specific listing venue not yet disclosed in the filing. The SEC's review of the registration statement will include a comment period, with the timeline for approval depending on the agency's response to the staking provisions.
This article is for informational purposes only and does not constitute investment advice.
