Briefing
The Internal Revenue Service (IRS) issued Revenue Procedure 2025-31, establishing a safe harbor that permits publicly traded, single-asset digital trusts (Exchange-Traded Products) to engage in staking activities on proof-of-stake networks. This action strategically resolves a critical legal ambiguity by confirming that staking does not constitute an “active business” or a “power to vary the investment,” thereby preserving the trust’s essential grantor/investment trust tax status and its corresponding pass-through tax treatment. The guidance is immediately actionable, providing a nine-month amendment window beginning November 10, 2025, for existing trusts to modify their governing instruments and integrate this new revenue stream.
Context
Prior to this definitive guidance, the prevailing legal uncertainty centered on the second requirement for an investment trust → the prohibition on a “power to vary the investment.” The generation of new tokens through staking was widely feared to violate this principle, which would reclassify the trust as a partnership or corporation subject to entity-level taxation, thereby destroying the product’s economic viability for investors. This compliance challenge forced digital asset ETPs to operate at a competitive disadvantage by foregoing the significant yield generated by proof-of-stake assets to ensure the maintenance of the crucial pass-through tax structure.
Analysis
This ruling fundamentally alters the operational and product structuring framework for institutional digital asset issuers. Regulated entities must immediately update their compliance frameworks to incorporate the 14 specific requirements of the safe harbor, which govern custody, liquidity, and operational controls. Adherence to these new operational parameters is the direct mechanism that allows for the integration of staking yield, which significantly enhances the competitive value proposition of the ETP against non-staking funds.
The cause-and-effect is clear → the integration of this IRS guidance into the firm’s compliance architecture enables a compliant yield-generating product, driving potential capital flow toward these newly legitimized structures. The guidance is narrowly tailored to publicly traded, single-asset trusts, necessitating a careful review of all existing and proposed multi-asset structures.
Parameters
- Safe Harbor Requirements → 14 specific operational, custody, and liquidity conditions a trust must meet to qualify for the safe harbor.
- Tax Status Preserved → Grantor Trust Status → The tax classification that allows for pass-through treatment, avoiding entity-level federal income tax.
- Compliance Window Start → November 10, 2025 → The date marking the beginning of the nine-month period for existing trusts to amend their governing documents.
Outlook
The immediate next phase involves ETP issuers utilizing the nine-month amendment window to update trust agreements and integrate staking operations, which is expected to increase product yield and intensify competition among institutional offerings. This precedent-setting tax clarity from the IRS implicitly validates the structure of yield-generating institutional digital asset products, setting a powerful standard. The action is likely to influence other regulatory bodies, including the SEC, by providing a validated, compliant framework for staking-based revenue models, thereby paving the way for more complex and capital-efficient digital asset offerings in the future.
Verdict
The IRS safe harbor is a decisive regulatory milestone that unlocks yield generation for institutional digital asset products, structurally integrating staking into the compliant financial ecosystem.
