Hong Kong is reportedly considering including an Ethereum staking option for the spot Ethereum exchange-traded fund (ETF) issuers.

If Hong Kong’s Securities and Futures Commission (SFC) allows staking, investors in local Ethereum (ETH) ETFs could generate passive income by staking tokens on the Ethereum network to validate transactions. 

Staking is a process where token holders lock their crypto tokens for a specific period, earning rewards as a percentage of the staked tokens as a reward. This process is facilitated by various third-party staking services that cater to user needs. Essentially, staking is a way of earning rewards – extra money – while holding onto specific cryptocurrencies.

This move by Hong Kong contrasts with the United States Security and Exchange Commission’s (SEC) perception of staking, which sees it as an investment contract and a violation of securities laws. A global adaption of spot ETF staking could spur ongoing discussions about the practice in the United States.

Staking’s role in the U.S.

Coinbase has been advocating for staking in the US and has been battling the SEC over the practice’s legality. Coinbase believes that core staking is not a security, as it does not involve an investment of money, and the opportunity cost of staking is not an investment.

Because users’ rewards are compensation for services delivered, Coinbase believes that staking does not fulfill an “expectation of profit” and consists of ministerial maintenance rather than conventional investing efforts.

In February, crypto.news reported that 55% of crypto investors in Singapore had staked crypto through a centralized exchange, signaling a strong optimism towards staking. Staking is popular in other global crypto hotspots. 

On Wednesday, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21), essentially communicating with the crypto industry that the US is welcome to crypto. Furthermore, the SEC approved spot Ethereum ETFs, causing the price of Ethereum (ETH) to increase to over $3900 at the time of writing. 

However, due to the SEC’s stance on staking, many US-based companies, like Fidelity Investments, haven’t made plans to stake in their upcoming Ethereum ETFs.