Hong Kong is considering allowing staking for exchange-traded funds (ETFs) that invest directly in Ethereum. Hong Kong’s Securities and Futures Commission (SFC) is reportedly working with the city’s cryptocurrency ETF issuers to offer staking services through a licensed platform.

Passive Cryptocurrency Income

This potential regulatory change could open up new sources of passive income for investors, putting Hong Kong ahead of the United States, where such offerings are restricted. Staking provides investors with a way to earn passive income by locking up tokens on the Ethereum network to help validate transactions and currently generates an additional approximately 4% annual token yields.

If the SFC approves staking yields, it could significantly enhance the appeal of Hong Kong’s spot cryptocurrency ETF, which has seen modest demand since its launch in April. The move could give Hong Kong a competitive advantage over the United States, which recently approved spot Ethereum ETF applications from Nasdaq, Cboe and the New York Stock Exchange.

Hong Kong is aggressively positioning itself as a digital asset hub to compete with cities such as Singapore and Dubai. It follows the implementation of a dedicated regulatory regime last year aimed at restoring the city's status as a financial hub after a period of political turmoil.

In addition to ETFs, Hong Kong is reviewing multiple applications to increase the number of licensed digital asset exchanges. Additionally, it is developing a stablecoin framework that is typically pegged to fiat currencies and backed by cash and bond reserves.

Recently, the U.S. Securities and Exchange Commission (SEC) approved applications from major exchanges such as Nasdaq, Chicago Board Options Exchange and the New York Stock Exchange to list ETFs linked to the price of Ethereum, which may pave the way for launch later this year. The funds pave the way, pending regulatory formalities and investor disclosures.

US partially approves Ethereum ETF

As the SEC deadline approaches to decide the fate of several Ethereum ETF applications, major asset managers including BlackRock, Grayscale, and Bitwise have made significant changes to their applications (eliminating staking provisions).