The Securities and Exchange Commission has instituted proceedings to determine whether to approve or disapprove a proposed rule change by Cboe BZX Exchange to list and trade shares of the Canary Staked SEI ETF. This development, detailed in a Federal Register notice dated December 9, 2025, stems from a filing submitted by the exchange on August 26, 2025. The proposal seeks to enable trading under BZX Rule 14.11(e)(4), which governs Commodity-Based Trust Shares. At its core, this ETF would hold SEI, a native token of the SEI Network blockchain, and incorporate staking mechanisms to generate rewards. The significance lies in the SEC's ongoing evaluation of cryptocurrency-linked investment vehicles amid broader debates on market integrity and investor protection.
Background and Proposal Details
Cboe BZX Exchange filed the proposed rule change with the SEC under Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4. The filing was published for comment in the Federal Register on September 11, 2025, with no comments received. On September 25, 2025, the SEC extended the review period, setting December 10, 2025, as the deadline for a decision or to initiate proceedings. The current order, released on December 4, 2025, formally starts these proceedings under Section 19(b)(2)(B) of the Act.
The Canary Staked SEI ETF, sponsored by Canary Capital Group LLC, aims to track the performance of SEI as measured by the CoinDesk SEI USD CCIX 60 min NY Rate. SEI serves as the native cryptographic token for the SEI Network, a Layer 1 blockchain optimized for high-performance trading and decentralized applications. The trust's assets would consist solely of SEI, cash, and cash equivalents. CSC Delaware Trust Company acts as trustee, with a third-party custodian handling SEI holdings.
A key feature is the staking component. The sponsor may stake portions of the trust's SEI through trusted providers, allowing the trust to earn staking rewards. These rewards would contribute to the ETF's performance, adjusted for expenses and liabilities. Shares would be valued daily at 4:00 p.m. ET using the pricing benchmark methodology. Transactions for creation or redemption would occur in blocks of 10,000 shares, either in cash or in-kind with authorized participants.
Key Players and Regulatory Framework
The primary entities involved include Cboe BZX Exchange as the listing venue, the SEC as the regulator, and Canary Capital Group LLC as the sponsor. The SEI Network itself is a decentralized blockchain, but the proposal focuses on the ETF's structure rather than the network's operations.
This filing operates under BZX Rule 14.11(e)(4), which allows for the listing of trusts holding commodities or their derivatives. Previous SEC approvals for similar products, such as bitcoin and ether ETFs, provide context. For instance, the SEC approved spot bitcoin ETFs in January 2024 after years of denials, citing improved market surveillance and reduced manipulation risks through agreements with exchanges like CME. Ether-based ETFs followed in 2024. However, SEI differs as it is tied to a specialized blockchain, not as widely traded as bitcoin or ether.
The SEC's decision to institute proceedings reflects caution, emphasizing consistency with Section 6(b)(5) of the Act. This section requires exchange rules to prevent fraudulent and manipulative acts while protecting investors and the public interest. The notice specifically invites comments on whether the proposal adequately addresses these concerns, including any novel issues posed by SEI holdings.
Legal Precedents and Political Forces
Relevant precedents include the SEC's evolving stance on crypto ETFs. In Grayscale Investments LLC v. SEC (2023), a federal appeals court ruled that the SEC's denial of a bitcoin ETF conversion was arbitrary, leading to subsequent approvals. This case underscored the need for consistent regulatory treatment across similar products.
Politically, the proposal emerges amid shifting federal approaches to cryptocurrency. The Biden administration has emphasized robust oversight, with SEC Chair Gary Gensler frequently highlighting risks like volatility and illicit finance in crypto markets. Congressional efforts, such as the FIT21 Act introduced in 2023, aim to clarify regulatory boundaries between the SEC and CFTC, potentially influencing future approvals. Industry advocates argue for innovation, while consumer protection groups stress the need for safeguards against manipulation in less mature markets like SEI.
Potential Implications and Perspectives
Short-term implications include extended uncertainty for the ETF's launch, with the proceedings allowing up to 240 days for a final decision. If approved, it could expand investor access to SEI without direct crypto ownership, potentially increasing liquidity and mainstream adoption. Rejection might signal stricter scrutiny for altcoin-based products beyond bitcoin and ether.
Long-term, approval could set a precedent for staking-inclusive ETFs, integrating decentralized finance elements into traditional markets. This raises questions about tax treatment of staking rewards and compliance with securities laws. Perspectives vary: proponents, including crypto industry groups, view it as a step toward financial inclusion. Critics, such as investor advocates, worry about underlying market vulnerabilities, given SEI's relatively smaller market cap compared to major cryptocurrencies.
Official statements in the notice underscore the SEC's focus on fraud prevention. The absence of public comments to date suggests limited immediate controversy, but the call for input may elicit diverse views.
Forward-Looking Conclusion
This SEC action highlights the delicate balance between fostering innovation and ensuring market integrity in the cryptocurrency space. Key takeaways include the potential for SEI-based products to broaden investment options and the regulatory emphasis on anti-manipulation measures. Moving forward, stakeholders may debate the adequacy of surveillance mechanisms for SEI markets and the broader integration of staking in ETFs. Possible trajectories involve further extensions, approvals conditioned on enhanced safeguards, or disapprovals prompting appeals or revised filings. Ongoing legislative developments could also shape the landscape, influencing how similar proposals are evaluated in the future.
