Briefing
The Internal Revenue Service (IRS) issued Revenue Procedure 2025-31, establishing a crucial tax safe harbor that permits grantor trusts, such as those underlying Exchange-Traded Products (ETPs), to engage in staking activities for a single digital asset without losing their classification as passive investment vehicles. This action immediately resolves a significant tax ambiguity that had prevented the launch of yield-generating ETPs, thereby creating a pathway for regulated asset managers to integrate native network yield into their product offerings. The most critical detail is the August 10, 2026, deadline for existing trusts to amend their agreements to incorporate the newly authorized staking activity.
Context
Before this guidance, the primary compliance challenge for digital asset ETP sponsors was maintaining the grantor trust’s status as a passive investment vehicle under US tax law. Any activity deemed “active” business management, such as participating in a staking consensus mechanism, risked reclassifying the trust as a partnership or corporation, leading to punitive entity-level taxation. This lack of clarity on whether staking constituted a permissible “preservation” activity or an impermissible “business” activity created a systemic barrier to offering products that capture native Proof-of-Stake yield.
Analysis
This revenue procedure fundamentally alters the product structuring guidelines for digital asset managers, allowing them to architecturally integrate staking into their ETP compliance frameworks. Regulated entities must now update their operational protocols to ensure the trust and its sponsor remain wholly independent from the staking provider, thereby mitigating the risk of the activity being deemed a joint venture or active business. The ruling unlocks a new revenue stream for ETPs, enabling them to offer a competitive yield component that was previously only accessible via unregulated platforms, a critical update for market competitiveness and capital formation. The strict requirement for the trust to stake all assets, with exceptions only for established liquidity and expense reserves, mandates precise financial control systems.
Parameters
- Revenue Procedure Number ∞ Rev. Proc. 2025-31, which establishes the tax safe harbor for staking.
- Trust Amendment Deadline ∞ August 10, 2026, the final date for existing trusts to amend agreements to authorize staking.
- Permitted Trust Activity ∞ Staking a single digital asset, alongside holding, preserving, and disbursing.
- Required Independence ∞ Trust and sponsor must be unrelated to the staking provider to maintain passive status.
Outlook
The immediate forward-looking perspective centers on the acceleration of new ETP filings and the subsequent integration of staking into existing product lines, establishing a new market standard for digital asset investment vehicles. This action sets a powerful precedent for other jurisdictions by demonstrating how tax authorities can pragmatically accommodate native blockchain functions like staking within traditional financial structures. The next phase will involve regulatory scrutiny from the SEC to ensure the staking arrangements comply with securities and custody rules, transforming the compliance focus from if a trust can stake to how the staking provider is governed.
Verdict
The IRS ruling provides essential tax clarity that legitimizes the integration of native blockchain yield into regulated investment products, marking a critical step toward institutional market maturation.
