Briefing
The Internal Revenue Service (IRS) issued Revenue Procedure 2025-31, a crucial clarification of existing law, confirming that digital asset staking activities by grantor trusts do not constitute an active business, thereby preserving the essential passive investment vehicle tax status required for Exchange-Traded Products (ETPs). This action directly addresses a core structural risk for institutional products by defining staking as a “preserving” activity, which is permissible for a grantor trust, rather than an “active business” that would trigger a disqualifying tax reclassification. The compliance consequence is immediate ∞ ETP issuers can now integrate yield generation into their product architecture, provided the trust’s activities remain limited and the trust is not related to the staking provider. Critically, trusts must amend their governing agreements to authorize staking by August 10, 2026 to align with the new guidance.
Context
The prevailing compliance challenge centered on the classification of staking under the Internal Revenue Code. Legal uncertainty existed regarding whether the continuous, yield-generating nature of staking constituted an “active business” activity, which would disqualify a single-asset trust from its passive grantor trust tax status. Without this clarity, ETPs holding proof-of-stake assets were unable to offer staking yields, placing them at a competitive disadvantage against offshore or unregulated products, and creating a significant legal hurdle for institutional product development in the United States.
Analysis
This action fundamentally alters the product structuring system for institutional digital asset offerings, particularly those based on proof-of-stake protocols. It provides a definitive tax safe harbor, enabling ETP issuers to incorporate staking yields, which enhances product attractiveness and total return for investors. The cause-and-effect chain is direct ∞ the clarification of “passive investment” status removes the primary tax impediment to offering Staking ETPs, leading to a new wave of product filings and capital inflow into regulated structures.
Regulated entities must now update their trust agreements and compliance frameworks to ensure the staking activities adhere to the strict limitations, such as being unrelated to the staking provider and maintaining required liquidity reserves. This update is critical for maintaining tax compliance and securing the long-term viability of yield-bearing digital asset funds.
Parameters
- Regulatory Instrument ∞ Revenue Procedure 2025-31 (IRS guidance)
- Compliance Deadline ∞ August 10, 2026 (Deadline for trusts to amend agreements)
- Tax Status Secured ∞ Grantor Trust (Passive Investment Vehicle)
- Key Condition ∞ Trust must be unrelated to the staking provider
Outlook
The immediate forward-looking perspective involves a surge in Staking ETP filings with the SEC, as the core tax risk has been mitigated. This ruling sets a precedent for how US regulators view yield-generating activities within regulated financial products, framing staking as a permissible “asset preservation” function rather than a commercial trading operation. Potential second-order effects include increased institutional demand for proof-of-stake assets and a strategic shift in capital allocation towards regulated, yield-bearing products. This tax clarity also places pressure on other jurisdictions to provide similar guidance to remain competitive in the global digital asset ETP market.
