Grayscale Plans Regular Cash Distributions from Ether and Solana Staking ETPs

Asset manager Grayscale plans to establish regular cash distributions from rewards generated by its Ether (ETH) and Solana (SOL) staking exchange-traded products (ETPs), giving holders recurring access to yield generated by underlying assets.

In Form 8-K filings submitted to the US Securities and Exchange Commission (SEC), Grayscale said it intends to amend the trust agreements governing the Grayscale Solana Staking ETF (GSOL) and the Grayscale Ethereum Staking ETF (ETHE) around Aug. 7. The amendments would require each trust to convert staking rewards into cash no less often than quarterly and distribute net proceeds to shareholders.

The framework could make staking returns more accessible to traditional investors by delivering cash rewards through broker-held products, eliminating the need for shareholders to hold crypto, pick validators and manage staking operations. However, Grayscale said distribution amounts cannot be predicted as they will depend on the staking rewards during each period and expenses deducted by the trusts.

Grayscale made its first ETHE staking distribution on Jan. 5, paying shareholders about $0.08 per share from the sale of rewards. The asset manager enabled staking for its ETH and SOL products on Oct. 6, 2023, becoming the first US crypto fund issuer to add staking to spot crypto ETPs.

ETHE ended the week with $1.22 billion in net assets, while GSOL had $101.13 million, Yahoo Finance data showed. The Ethereum fund’s gross staking rewards were 2.67%, as of July 17, while the Solana fund’s gross staking rewards were 6.10%, according to the fund’s home pages.

Aligning staking funds with US tax guidance

Grayscale said the changes are designed to keep the funds compliant with the Internal Revenue Service (IRS) rules that enable them to earn staking rewards without losing their current tax treatment.

The company said the amendments should not significantly harm shareholders, but it’s still giving them a 20-day notice. Once the changes take effect, the asset manager plans to update the funds to explain how the regular cash payouts will work.

Under the proposal, each trust could deduct expenses not assumed by Grayscale before making a distribution. These costs may include a portion of the staking rewards paid to the sponsor in exchange for arranging and facilitating the staking activities.

The filings do not set a fixed distribution amount or guarantee that payouts will be identical each quarter. Instead, the filings said that rewards may vary depending on the assets staked and network conditions.