The US Treasury Department and the Internal Revenue Service (IRS) approved a new safe harbor under Revenue Procedure 2025-31, allowing regulated funds to engage in crypto ETP staking and distribute staking rewards without losing investment trust tax status. The move clears the path for Ethereum staking ETFs and provides long-awaited tax clarity for digital asset yield products.
IRS Establishes Safe Harbor for Crypto ETP Staking
The path is finally clear for regulated funds to capture yield from assets like Ether.
The U.S. Treasury Department and Internal Revenue Service (IRS) on November 10, 2025, issued Revenue Procedure 2025-31, establishing a tax safe harbor for crypto ETP staking and clarifying when staking rewards remain compliant under U.S. tax law.
The new rule lets investment and grantor trusts, including exchange-traded products (ETPs), stake digital assets and distribute rewards to investors without losing their investment trust tax status. It resolves a long-standing compliance barrier that had discouraged fund sponsors from integrating staking into regulated investment vehicles.
Treasury Secretary Scott Bessent said the measure “gives crypto exchange-traded products a clear path to stake digital assets and share staking rewards with their retail investors.”
Under the guidance, staking rewards may be distributed in-kind or in cash, net of fees, on a quarterly basis. The safe harbor applies immediately to qualifying investment trusts and requires them to maintain liquidity reserves and qualified custodians to ensure tax compliance.
The policy corrects gaps left by Revenue Ruling 2023-14, which classified staking rewards as taxable income upon receipt. That ruling created uncertainty around when ETPs could recognize or distribute staking rewards, issues now resolved by the 2025 procedure.
Regulatory Alignment Follows SEC Staking Clarification
The IRS action caps a year of regulatory alignment across U.S. agencies. Earlier in 2025, the Securities and Exchange Commission (SEC) issued a Statement on Certain Protocol Staking Activities, clarifying that protocol-level staking does not inherently violate securities laws.
That clarification opened the door for Ethereum staking ETFs and other funds to integrate staking directly into their operations.
By October, Grayscale’s Ethereum ETP became the first U.S. spot crypto ETF under the 1933 Securities Act to incorporate staking. The move signaled growing regulatory comfort around proof-of-stake mechanisms, once viewed as too operationally risky for traditional fund structures.
Bill Hughes, senior counsel and director of global regulatory matters at Consensys, said the IRS decision “effectively removes a major legal barrier that had discouraged fund sponsors, custodians, and asset managers from integrating staking yield into regulated investment products.”
Staking Yields Expected to Lift Crypto ETP Returns
For investors, the integration of staking is expected to boost crypto ETP yields on assets such as Ethereum (ETH) and other proof-of-stake tokens.
Over the 180 days ending September 28, 2025, the average Ethereum staking reward rate was 2.98%, according to on-chain data. That yield can now flow directly to ETP holders.
The shift comes as institutional engagement surges. Total crypto market capitalization reached $4.0 trillion by Q3 2025, up 16.4% quarter over quarter, reflecting strong inflows into spot Bitcoin and Ethereum funds.
Secretary Bessent said the new guidance “boosts innovation, increases investor benefits, and keeps America the global leader in digital asset and blockchain technology.”
Hughes added that expanding staking participation among regulated entities could also strengthen network decentralization and liquidity, both core goals of proof-of-stake design.
Risk Management and Compliance Requirements
The IRS guidance also introduces investor protection measures. ETPs must provide indemnification against slashing penalties, a protocol-level mechanism where validators lose a portion of staked assets for rule violations.
By requiring this safeguard, the rule aligns staking compliance with broader fund governance standards applied to traditional financial products. Tax lawyers and fund managers say the ruling may trigger a new wave of crypto ETP filings with staking features, particularly for Ethereum, Solana, and other proof-of-stake assets.
Chain Street’s Take
For years, crypto funds faced a paradox: staking rewards were central to blockchain economics but incompatible with the structures that define regulated investment products. Revenue Procedure 2025-31 changes that.
It marks the first time the IRS has formally recognized how digital asset staking rewards fit within U.S. tax and trust law. The decision is likely to reshape how crypto yield is generated, distributed, and taxed across the financial system.
