Crypto ETFs Cleared for Staking as IRS Unveils Landmark Tax Guidance
In a significant regulatory shift, the U.S. Treasury and the Internal Revenue Service (IRS) have officially authorized cryptocurrency exchange-traded funds (ETFs) to participate in staking activities. This pivotal move, outlined in the newly released Revenue Procedure 2025-31, provides long-awaited clarity on the tax treatment of staking rewards, effectively paving the way for institutional investors to tap into passive income opportunities within the crypto space.
Under the new guidelines, ETFs and trusts that hold proof-of-stake (PoS) assets—such as Ethereum (ETH) and Solana (SOL)—are now permitted to stake their holdings. More importantly, these funds can distribute staking rewards directly to shareholders without jeopardizing their tax-advantaged status. The IRS has established a “safe harbor” provision that ensures the funds are not subject to trust-level taxation, provided that they meet clearly outlined regulatory criteria.
One of the most notable elements of the guidance is the taxation mechanism. Investors will only be liable for taxes once they take possession of the staking rewards, rather than being taxed at the moment rewards are earned. This shift aligns the tax treatment of staking income more closely with traditional interest-bearing investments and enhances the appeal of staking-based ETFs.
To qualify for this treatment, funds must adhere to a strict set of requirements. Eligible ETFs may only hold a single cryptocurrency asset in addition to cash, must use regulated custodians for key storage and management, and are required to contract with independent, third-party staking providers to operate validator nodes. These safeguards are designed to ensure institutional-level security and compliance while maintaining the decentralized nature of blockchain validation processes.
This development follows earlier moves by the SEC in September 2025, when it approved listing rules for crypto ETFs and clarified that certain staking operations would not be classified as unregistered securities. Together, these regulatory milestones represent a growing alignment between traditional financial oversight and emerging digital asset infrastructure.
Scott Bessent, Treasury Secretary, hailed the update as a landmark moment in financial innovation, stating that it reinforces the United States’ leadership in blockchain development. Legal and industry experts echoed his sentiment, suggesting that the new tax framework removes one of the last major barriers preventing institutional investors from embracing staking strategies within compliant financial products.
Bill Hughes, senior counsel at Consensys, emphasized that the guidance “removes the biggest legal and tax uncertainty that has prevented institutions from integrating staking into regulated investment vehicles.” He noted that the move will empower fund sponsors to develop ETFs that not only track crypto prices but also generate staking yield, offering investors a new source of passive income.
Until now, many U.S.-based fund managers had refrained from incorporating staking into ETF structures due to legal ambiguity and the risk of losing favorable tax treatment. With the new IRS guidance, both retail and institutional investors can now potentially access 3% to 7% annual returns on staked assets like ETH and SOL—without managing validator infrastructure, running nodes, or holding private keys themselves.
Market analysts estimate that this decision could unlock between $3 billion and $6 billion in inflows to staking-enabled ETFs over the next 12 months. Financial powerhouses such as BlackRock, Fidelity, and others are expected to accelerate product development in this area, potentially launching a new generation of yield-generating crypto ETFs aimed at both high-net-worth individuals and institutional clients.
The timing of the announcement is also notable. It follows a prolonged 40-day U.S. government shutdown, marking one of the first major policy actions since federal operations resumed. Industry insiders see it as a signal that Washington is reengaging with digital asset regulation and is committed to building a robust framework for innovation in decentralized finance.
Beyond the immediate implications for ETFs, this policy shift may also influence broader adoption of staking mechanisms across financial markets. By legitimizing staking in a regulated investment context, the IRS and Treasury are helping to bridge the gap between traditional finance and decentralized blockchain systems. This could encourage further product innovation, from retirement accounts with crypto exposure to hybrid funds that combine staking with traditional yield instruments.
In addition, the IRS’s move may prompt similar regulatory clarity in international markets. Jurisdictions in Europe, Asia, and Latin America have been closely monitoring U.S. developments in digital asset taxation, and this precedent could inspire more uniform global standards for staking taxation and compliance.
For individual investors, the change offers a simplified entry point into staking without the technical complexity of managing wallets, maintaining uptime, or handling network governance. As ETFs begin to integrate staking, everyday investors may soon be able to earn passive crypto income with the same ease as investing in dividend-paying stocks or bond funds.
Financial advisors are likely to begin incorporating staking-enabled ETFs into diversified portfolios, especially for clients looking for non-correlated income streams or inflation-hedging strategies. This opens up new avenues for financial planning and wealth management in the digital age.
In the long run, this regulatory update could also strengthen the underlying networks of PoS blockchains. With more tokens being staked through institutional channels, networks like Ethereum and Solana may benefit from increased decentralization, enhanced security, and more stable validator participation—further reinforcing their roles as foundational layers in the Web3 ecosystem.
In summary, the IRS’s approval of staking for crypto ETFs marks a transformative step in the evolution of digital assets as mainstream investment tools. By resolving key tax uncertainties and setting clear operational standards, regulators have laid the groundwork for a new era of compliant, yield-generating crypto products that are accessible to a broad range of investors. The move not only legitimizes staking in the eyes of traditional finance but also signals a deeper integration of blockchain innovation into the global financial system.