The Impact of Hong Kong's Approval of Virtual Asset ETF Staking

Apr 08, 2025

By: Jiang Zhaosheng, Senior Researcher at OKG Research Institute

At the recent Hong Kong Web3 Carnival, Christina Choi, Executive Director of the Investment Products Division at Hong Kong’s Securities and Futures Commission (SFC),announced that licensed virtual asset spot ETFs would be allowed to provide staking services. Soon afterward, the SFC issued an official circular, explicitly allowing approved ETFs to engage in on-chain staking activities such as Ethereum. This marks another significant step toward compliance in Hong Kong’s virtual asset market, enhancing ETF yields and appeal. More notably, this initiative represents the first-ever integration of traditional financial products with the native mechanisms of the on-chain economy, providing a global reference model for crypto asset regulation and financial innovation.

1. Staking Enters ETF Ecosystem, Providing Compliant On-chain Yield Opportunities

Staking is now an essential on-chain economic activity in the virtual asset ecosystem, especially for blockchains adopting the Proof-of-Stake (PoS) consensus mechanism. Not only does staking ensure network security and normal operation, but it also serves as the primary way for institutions and users to earn on-chain yield. According to partial statistics from OKG Research, as of early April 2025, more than 34 million ETH had been staked on Ethereum, accounting for 28.03% of its total supply. Networks such as Cardano and Solana have consistently maintained staking ratios above 70%,this demonstrates that staking, as a widely accepted on-chain yield mechanism, has already established a strong foundation of market consensus.

Under the SFC’s latest circular, licensed virtual asset spot ETFs will be allowed to stake their holdings — such as ETH — within a prudently managed framework to earn native on-chain yield. This move sends at least two key signals. First, Hong Kong acknowledges staking as a core mechanism for earning network rewards within public blockchain ecosystems, recognizing its sound and rational economic foundation. Second, the city is actively working to enhance the international competitiveness of virtual asset ETFs, aiming to boost product appeal and further energize its capital markets. It is worth noting that approved ETFs are only permitted to engage in staking through regulated platforms. These platforms are required to custody the staked assets, and staking ratios must be limited to manage liquidity risks and ensure asset segregation and security. Furthermore, ETF managers must provide full disclosure on key aspects of the staking mechanism, including the operating method, the model for calculating yield, potential risks involved, and the maximum staking ratio. These requirements are designed to protect investors’ rights to transparency and safeguard their assets.

The introduction of staking mechanisms is expected to significantly enhance both the appeal and scale of Hong Kong’s spot virtual asset ETFs. In essence, staking enables the reutilization of underlying crypto assets, generating additional yield without altering the structural composition of ETF shares. This creates a compliant “on-chain yield channel” for both retail and institutional investors. Unlike traditional ETFs, which primarily rely on asset price appreciation or dividends for returns, the integration of staking transforms virtual asset spot ETFs from passive price-tracking instruments into proactive yield-generating “on-chain entitlement instruments.” The additional annual yield of approximately 3%-6% derived from staking is expected to become a key factor in attracting institutional investors, family offices, and medium- to long-term capital. It is anticipated that in the next 6 to 12 months, as staking mechanisms are progressively implemented, the assets under management of Hong Kong’s spot virtual asset ETFs will experience structural growth.

At the same time, the reward-sharing mechanism brought by staking will broaden the revenue structures of asset managers and custodians, incentivizing more fund management companies and technical service providers to explore additional innovative product structures. This development will further enhance the differentiation and competitiveness of virtual asset-related financial products in Hong Kong. Moreover, since ETF staking imposes stringent technical requirements on custodians and platforms, the potential demand for compliant staking solutions will, in turn, compel Hong Kong to continuously refine the development of supporting infrastructures, including virtual asset custody, security compliance, and related technical facilities.

More importantly, from international perspective, Hong Kong’s latest move carries significant strategic advantages as a “first mover”. Currently, numerous prominent U.S. fund companies — including Ark Invest and Fidelity have already filed applications with the SEC, aiming to introduce staking functionality into their spot Ethereum ETFs. Against this backdrop, Hong Kong’s proactive stance in implementing clear staking policies demonstrates a more flexible yet cautious regulatory approach. Such a position not only helps Hong Kong attract more global capital which actively seeking on-chain yield opportunities but also reinforces its leadership in the global landscape of virtual asset product innovation.

2. Building a genuine yield-driven bridge between on-chain finance and traditional capital markets.

Hong Kong’s decision to approve staking services at this juncture is not merely a case of regulatory loosening, but reflects a deeper strategic intention: The move is not only aimed at enhancing the functionality and yield mechanisms of ETF products, but also at driving the evolution of Hong Kong’s virtual asset market toward greater maturity and internationalization. Crucially, this development is being pursued under a framework that prioritizes investor protection and effective risk management.

The primary rationale behind introducing staking lies in reinforcing and optimizing the operational framework of Hong Kong’s local ETF market. Since the approval of the first batch of spot virtual asset ETFs in 2024, the market has demonstrated rational responses and sound product structures. However, overall trading activity and assets under management have yet to meet market expectations. The absence of an endogenous yield mechanism has made these products appear relatively limited when compared to traditional income-generating funds. The integration of staking not only introduces an additional source of yield but also forges a closer connection between ETFs and the underlying blockchain ecosystem. This enhanced linkage is expected to attract a wider range of investors — particularly institutional players who seek a balanced approach between yield generation and asset allocation.

Secondly, this move represents a forward-looking strategic deployment amid the ongoing global regulatory contest. At present, the United States has yet to approve any spot virtual asset ETF that incorporates staking, primarily due to ongoing disputes within the SEC regarding asset ownership, risk control, and the potential classification of staked assets as securities.

In contrast, Hong Kong’s initiative reflects a more open and progressive policy orientation, while simultaneously offering a clearer regulatory framework within a legally compliant structure. By requiring staking to be conducted through regulated third parties, ensuring full oversight by custodians, and mandating transparent information disclosure, potential risks are brought within a manageable scope.

This cautious yet innovative regulatory approach may serve as a valuable reference model for other jurisdictions seeking to balance innovation with investor protection and market integrity.

At a deeper level, the introduction of staking within ETFs marks a critical step in Hong Kong’s effort to build a closed-loop Web3 financial ecosystem. Since the establishment of the VASP licensing regime and the opening of virtual asset trading to retail investors, the city’s regulatory framework for digital assets has gradually taken shape. However, to advance toward a truly resilient and sophisticated Web3 financial system requires more than just asset issuance and secondary market trading.

It is essential to simultaneously develop across multiple dimensions — including product yield mechanisms, on-chain asset operations, and compliant technological infrastructure. The incorporation of a staking mechanism into ETFs represents a pioneering attempt to embed native DeFi functionalities within traditional financial structures. This initiative lays the groundwork for establishing a genuine yield-driven bridge between decentralized finance and traditional capital markets.

In the future, whether the United States will approve the integration of staking functionality into Ethereum ETFs is expected to have a significant impact on the design of virtual asset products globally. As institutions such as Coinbase and Grayscale continue to engage in policy dialogue, the SEC’s stance on staking mechanisms may gradually soften. According to the latest market disclosures, certain pilot applications involving staking features have already entered the final stages of evaluation. If ultimately approved, such a development would not only establish a new benchmark for ETF products worldwide, but also introduce competitive pressure on Hong Kong’s existing product structures. However, prior to this, Hong Kong’s advantages in regulatory clarity and policy execution efficiency had already helped it to attract increasing international capital focused on on-chain yield. This would further consolidate Hong Kong’s leadership in the evolving global landscape of virtual assets and digital financial innovation.

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