While the approval of spot Ethereum ETFs by the SEC may clarify Ether’s non-security status, experts believe it could have unwanted ramifications for the ecosystem.

After months of deliberation and delayed decisions, the U.S. Securities and Exchange Commission (SEC) has accepted spot Ether (ETH) ETFs. However, this approval is currently limited to the 19b-4 filings, with actual trading authorization potentially taking months as issuers’ S-1 applications are still under review.

Typically, this process takes several months, and experts suggest it could be somewhat accelerated. For reference, Bitcoin ETFs took at least 90 days for approval.

As the industry welcomed this move, especially following the approval of spot Bitcoin (BTC) ETFs, experts noted that spot Ether funds could have more significant implications than initially imagined.

Centralization and Ether Dormancy

A fundamental difference between ETFs underpinned by BTC and ETH lies in the individual consensus mechanisms employed by both blockchains. Bitcoin uses a proof-of-work model, where miners solve complex mathematical equations for block rewards. In contrast, Ethereum, even before its transition to a proof-of-stake design, powered a multi-billion dollar decentralized finance (DeFi) landscape and was built for on-chain deployment.

Flipside Crypto data scientist Carlos Mercado explained that holding ETH idly in funds seems counterproductive to the asset’s merits.

“Holding ETH idly is like hoarding barrels of gasoline—it’s not the best use of the asset,”

Mercado said.

While staking may address this concern, all staking language was removed from several updated spot Ethereum ETF bids. The SEC also cracked down on staking service providers, adding further speculation around U.S. crypto staking adoption.

Regulatory Clarity

According to Vega Protocol quantitative developer Tom McClean, removing staking features eased questions of centralization but did not fully address the problem. ETFs may only buy, hold, and sell Ether tokens without staking, introducing the risk of large amounts of ETH remaining unstaked and unproductive.

On the flip side, McClean believes this outcome could push investors and issuers to seek regulatory clarity on staking. Keyrock’s head of business development (APAC), Justin d’Anethan, echoed similar thoughts, suggesting that approved filings seemingly endorsed Ether as a non-security. This could relieve many investors and Ethereum stakeholders.

Although the arguments and approved filings suggest a significant shift from the SEC on ETH’s financial instrument status, it’s still unclear how the Wall Street regulator views the asset.

For more updates and news on cryptocurrencies, investing, and finance, stay tuned to Global Crypto News.

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