The IRS has released new guidance that marks a significant turning point for crypto exchange-traded products (ETPs) in the United States. With this update, ETPs can now participate in staking digital assets—such as Ethereum—without risking their status as investment trusts for federal income tax purposes. This change is immediately effective and gives fund managers, custodians, and asset managers a legal framework to integrate staking rewards into regulated investment products.

Staking works on proof-of-stake blockchains, where participants lock up their crypto holdings to help validate transactions on the network, earning rewards in return. Until now, regulatory uncertainty around how staking rewards were treated for tax purposes created barriers for ETPs wishing to offer this benefit to their investors.

The IRS guidance introduces a safe harbor that allows crypto ETPs to stake assets and distribute rewards to retail investors, removing a major compliance risk. Industry experts view this development as a way to increase investor benefits, foster innovation, and strengthen the U.S. position as a leader in digital asset technology and blockchain. It is also expected to drive higher participation in staking, boost liquidity across networks, and contribute to greater decentralization.

Overall, the IRS’s move makes staking a tax-recognized activity for regulated investment products, giving investors more opportunities to earn yields through crypto ETPs and paving the way for broader adoption of digital assets within mainstream finance.