VanEck, one of the first issuers of spot Bitcoin Exchange-Traded Funds (ETFs) in the United States, announced on June 27th that it has applied for a new Solana ETF. VanEck's Head of Digital Asset Research, Matthew Sigel, posted this news on X, stating that the company has applied to the U.S. Securities and Exchange Commission (SEC) to establish an ETF called "VanEck Solana Trust." The fund aims to leverage Solana's decentralized nature, high utility, and cost-effectiveness. According to Sigel, this is also the first Solana ETF application in the U.S.
Goals and Mechanisms of VanEck Solana Trust
The investment objective of VanEck Solana Trust is to reflect the performance of Solana cryptocurrency, minus the operating expenses of the trust. The documents indicate that the trust will use the MarketVector Solana Benchmark Rate Index to value its shares daily. This index is based on the prices provided by what MarketVector considers the top five SOL trading platforms, which are determined by the industry-leading CCData centralized exchange benchmark review report.
Legal Challenges
Despite efforts by U.S. securities regulators to restrict cryptocurrency-based ETFs due to concerns over potential market manipulation, the biggest obstacle is the SEC's enforcement division explicitly stating that SOL is an unregistered security. The SEC reached this conclusion based on securities laws from the 1930s and the Howey Test. The Howey Test determines whether something constitutes an "investment contract," which basically means that if a person invests money in a common enterprise with an expectation of profit derived from others' efforts, the SEC can declare the asset as a security.
However, many crypto legal experts challenge this, arguing that comparing tokens supported by a decentralized, globally distributed ledger to company equity is meaningless. For instance, industry lobbyists at Coin Center have published numerous reports arguing that the level of decentralization and permissionless technology of blockchains, as well as the distribution of tokens, should be considered.
Decentralization Debate
While Solana may be considered less decentralized than Ethereum in some aspects, this is not a "binary" issue. Regulators may decide to treat them differently depending on their respective stages of development. Solana developer and Helius co-founder Mert Mumtaz points out that Solana ranks in the top 1% of decentralized networks and is a builder's asset, as it is used to prioritize transactions, stake for network bandwidth, allocate storage, and pay network fees.
Market Surveillance and Strategy
The SEC has previously expressed concerns about market surveillance standards related to the cryptocurrency spot market, which is one reason it took ten years to approve the first Bitcoin spot ETF after reviewing the initial application. Columbia Business School Associate Professor Austin Campbell suggests that VanEck's application is unlikely to be approved, but their strategy seems to be "getting in early." Other analysts note that other companies might quickly follow VanEck's lead, similar to what happened in mid-2023 when BlackRock unexpectedly filed for a spot Bitcoin ETF.
Despite legal challenges that may impede VanEck's application, many legal commentators are optimistic that numerous ETFs will eventually be approved, though this might require a change in leadership.
Elections and Regulation
Cryptocurrency has become a more prominent election issue than ever before, with many predicting that former President Donald Trump's recent support for the industry could boost his popularity. Scott Johnsson, a general partner at Van Buren Capital, suggests that VanEck's application could be detrimental to President Biden, given the widespread perception that his administration is anti-crypto. Although the chances of rejection are high, pushing the boundaries aims to raise questions about how the SEC will regulate cryptocurrencies.
University of Kentucky law professor Brian Frye notes that the SEC may soon give final approval to an ETH ETF, making the approval of a Solana ETF inevitable, despite the current SEC leadership's general reluctance towards cryptocurrencies and approving these ETFs. Ultimately, the SEC may have "no choice" but to approve these applications.
In summary, VanEck's Solana ETF application marks a significant step for the cryptocurrency market and regulatory environment. Despite numerous challenges, its prospects remain promising.
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