The U.S. Securities and Exchange Commission (SEC) has voiced significant legal concerns regarding the Ethereum and Solana exchange-traded fund (ETF) proposals submitted jointly by REX Shares and Osprey Funds. In documents filed on May 30, the SEC identified critical unresolved questions related to the ETFs’ legal structures, potentially blocking the funds from moving forward.
According to the SEC filing, the agency is particularly concerned about whether the proposed REX-Osprey ETFs for Ethereum and Solana qualify as investment companies. Under established laws, an entity classified as an investment company must primarily engage in holding or trading securities, or at least 40% of its assets must be made up of securities. The SEC warned the ETFs’ current filings—as structured—might not properly reflect their legal status, potentially misleading prospective investors.
Another point raised by the regulatory body involves compliance with Rule 6c-11 of the Investment Company Act, a regulation setting exchange listing standards for funds aiming to be traded publicly. Given these concerns, the SEC directed the firms to amend and update their filings before further consideration can be granted to the ETF proposals.
Market analysts noted an unconventional approach taken by REX Shares and Osprey Funds, especially their decision to structure these ETFs as C corporations—a relatively unusual tactic intended to circumvent uncertainties around whether cryptocurrencies, specifically Ethereum (ETH) and Solana (SOL), are considered securities under the Investment Company Act. By adopting a C corporation entity and establishing subsidiaries in the Cayman Islands, the companies attempted to bypass strict regulations that apply to crypto custody providers.
Commenting on this structure, Bloomberg analyst James Seyffart highlighted the “clever workarounds” embedded within these ETF proposals, which enabled the funds to come into effect without passing through the SEC’s conventional 19b-4 approval process. Despite this, as of June 2, 2025, no U.S.-based exchanges have listed either of the funds, casting additional uncertainty on their timeline and viability.
The SEC’s pushback illustrates an ongoing caution and stringent oversight in clearing crypto-based financial products, signifying that ETF issuers must clearly meet established legal requirements before gaining entry into U.S. financial markets.
