IRS Issues Groundbreaking Guidance Allowing Wall Street Crypto Products to Stake Digital Assets

The Internal Revenue Service (IRS) issued new regulatory guidance earlier this week, effectively allowing Wall Street crypto products to stake digital assets and share staking yields with investors - without creating tax complications. 

The move by the US Treasury and IRS is expected to significantly boost the mainstream adoption of proof-of-stake blockchains. 

Wall Street Crypto Products May Now Generate Staking Yields for Investors

Earlier this week, investors in crypto exchange-traded products (ETPs) received welcome news from the IRS and the Treasury Department in the form of new regulatory guidance.

On Monday, the IRS published new guidance that, under certain conditions, allow Wall Street-traded crypto products to generate staking yields for their investors with regulatory assurance. The newly issued framework provides protection for investment trusts, enabling them to stake digital assets and distribute staking yields to retail investors without the risk of violating existing regulations or jeopardising their tax status.

According to the IRS document, under certain conditions, trusts may “stake their digital assets without jeopardizing their tax status as investment trust and grantor trusts for Federal income tax purposes.” 

Where investment trusts meet the criteria outlined in the guidance, staking appears to be safely permitted and recognised as an acceptable institutional activity under federal law.

Maintaining the US as a Global Leader in Digital Assets and Blockchain Technology

To ensure protection under the new guidance, an investment trust must meet certain criteria as detailed in the IRS document. 

The criteria specify that trusts may hold only one type of digital asset from a permissionless, proof-of-stake blockchain. The trust must perform no other function apart from holding, staking, and redeeming the relevant token and its associated yields. Additional requirements include reliance on a custodian and an independent staking provider to manage the staking process.

The guidance took effect immediately upon publication. 

Blockchains that employ proof-of-stake consensus mechanisms—such as Solana (SOL) and Ethereum (ETH)—require network participants to “stake” some of their cryptocurrencies to secure the network and, in return, earn rewards. These rewards vary in annual percentage yield (APY) depending on the network and the amount of tokens staked.

A Positive Reception to the Policy

US Treasury Secretary Scott Bessent praised the policy in a post on X, describing it as a “clear path” for Wall Street to stake digital assets and share staking yields with institutional investors.

Bessent highlighted the significance of the policy:

“This move increases investor benefits, boosts innovation, and keeps America the global leader in digital asset and blockchain technology.” 

Industry leaders also welcomed the decision. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at the leading Ethereum software company Consensys, commented on X:

Hughes added that, as a result of the policy, more regulated entities will now be able to stake on behalf of their investors—likely increasing staking participation, liquidity, and overall network decentralisation.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.