IRS Issues New Guidance Allowing Crypto ETPs to Stake Assets and Distribute Rewards

The IRS, together with the U.S. Department of the Treasury, has issued landmark guidance via Revenue Procedure 2025-31, carving out a safe-harbor framework that allows regulated digital-asset investment trusts and exchange-traded products (ETPs) to stake crypto assets and share the resulting rewards with investors, a major development for institutional crypto funds.

What the guidance says

Under the new safe-harbor rules:

• A trust or ETP that holds only one type of digital asset (plus cash) from a permissionless proof-of-stake blockchain may engage in staking without jeopardising its tax classification as an investment trust or grantor trust.
• The entity must use a qualified custodian and an independent staking service provider. The operations must limit the fund to holding, staking, and redeeming assets with no broad discretionary trading in the staked token.
• The guidance applies to tax years ending November 10, 2025, or later, and existing trusts have a nine-month window to amend their documents to comply.

Treasury Secretary Scott Bessent announced on X that the policy “provides a clear path” for crypto investment products to offer staking yield to investors and supports U.S. leadership in digital-asset finance.

Why this matters

• For years, institutional asset managers stayed away from staking within regulated vehicles due to tax and structure-risk concerns. This guidance removes a major barrier and opens the door for staking-enabled ETFs and trusts.
• It brings staking, once considered a niche crypto activity, into mainstream investment vehicles, meaning retail and institutional investors may gain access to staking yields via regulated funds rather than direct wallet staking.
• Networks like Ethereum and Solana, which support proof-of-stake, could see increased capital inflows as funds seek to deploy assets in staked positions through compliant structures.

Key risks & considerations

• Even with the safe-harbor, fund sponsors must strictly adhere to the defined conditions; non-compliance could trigger tax issues or reclassification.
• Staking introduces operational risks (e.g., slashing, validator downtime, token liquidity) that funds must manage within the regulated framework.
• The actual yield from staking may vary significantly by network and token; investor expectations must be aligned with the underlying risk-reward.
• Regulatory oversight remains evolving, while the IRS and Treasury clarified tax treatment, other aspects (securities law, fund disclosure, custody) may still require attention.

What to watch next

• New product launches: Expect asset managers to file for staking-enabled crypto ETFs or trusts, marketing yield as a differentiator.
• Network implications: Whether staking flows increase materially into major proof-of-stake networks, and how that affects supply, liquidity, and network security.
• Fund structure disclosures: Watch for amendments to trust agreements and custody arrangements reflecting compliance with the safe-harbor.
• IRS follow-through: How the IRS monitors compliance, audits stakeholder-enabled vehicles, and clarifies further rules.

FAQs

Q: What is the new IRS guidance for crypto ETPs?
The IRS issued a safe-harbor (Revenue Procedure 2025-31) that allows regulated trusts and exchange-traded products holding a single type of digital asset (plus cash) to stake that asset and distribute staking rewards to investors without losing their tax-preferred status.

Q: Does this mean anyone can stake in a crypto ETF now?
Not immediately. Funds must meet strict conditions (single-asset exposure, qualified custodian, staking only, compliance amendments) before they can operate under the safe-harbor. Retail access depends on product launches.

Q: Which networks might benefit?
Proof-of-stake blockchains such as Ethereum and Solana are likely candidates, since staking yields are available and institutional demand is high.

Q: Does this change how individual investors are taxed?
The guidance primarily addresses fund vehicles. Individual investors still must treat staking rewards as income when they gain dominion and control, according to prior IRS guidance.

Q: When will these staking-enabled crypto ETFs become available?
While the tax path is cleared, product launches will take time; some asset managers project roll-outs in mid-2026 as trusts amend structure and custody frameworks.