regulatoryapproval sought by Cboe BZX for Invesco Galaxy's Solana Exchange-Traded Fund
The proposed Invesco Galaxy Solana ETF, a joint venture between global asset manager Invesco and crypto-focused financial company Galaxy Digital, is facing challenges in its journey towards regulatory approval. Cboe BZX and NYSE Arca have both submitted separate proposals to the SEC, seeking to fundamentally change how crypto ETFs get approved, aiming to bring crypto ETF treatment in line with traditional asset classes.
The ETF, if approved, would track the "Lukka Prime Solana Reference Rate" and allow for both cash and in-kind creation and redemption of shares. However, concerns around the centralization and market manipulation risks associated with Solana's proof-of-stake (PoS) model have raised eyebrows among regulators, particularly the SEC.
The concentration of staked SOL and validator power in Solana's network is a significant concern. As of mid-2025, about 20 of the largest validators control just over one-third of all staked SOL tokens. This concentration raises concerns about governance capture, vulnerability to manipulation, and the potential for coordinated actions by large validators.
The Invesco Galaxy Solana ETF pools investors' capital to gain exposure to Solana’s staking rewards. However, because Solana's staking is structurally concentrated, the ETF could potentially amplify centralization risks. There is concern that major stakeholders might influence block production or market prices to the detriment of smaller investors.
The SEC's delay in approving crypto ETFs, including the Solana ETF, reflects cautiousness around these systemic risks. The ETF proponents argue that Solana’s characteristics do not require typical surveillance-sharing agreements due to its market features. However, analysts like Kadan Stadelmann, Chief Technology Officer at Komodo Platform, warn of structural risks inherent in Solana's PoS design that regulators must address.
The regulatory environment for the Solana ETF is challenging, marked by recent delays and mixed signals from the SEC. This month alone, the SEC blocked two staff-approved multi-asset crypto ETFs: Grayscale's Digital Large Cap Fund and Bitwise's 10 Crypto Index ETF.
Despite these challenges, the proposed ETF would offer investors regulated access to the native token belonging to Layer 1 blockchain Solana through traditional securities markets. The SEC's decisions on crypto ETF approvals have been marked by delays and mixed signals, and the fate of the Invesco Galaxy Solana ETF remains uncertain.
References: 1. Invesco Galaxy Solana ETF: Risks and Regulatory Challenges 2. Solana's Nakamoto Coefficient: Centralization Risk and Progress 3. SEC Delays Decision on Invesco Galaxy Ethereum Staking ETF Proposal 4. Understanding the Risks of Staking in Proof-of-Stake Networks 5. Solana's Decentralization Metrics: Progress but Still Concerns
- The Invesco Galaxy Solana ETF, aiming to track the "Lukka Prime Solana Reference Rate", faces delays in regulatory approval due to concerns about centralization and market manipulation risks associated with Solana's proof-of-stake model.
- The proposed ETF would allow for both cash and in-kind creation and redemption of shares, pooling investors' capital to gain exposure to Solana’s staking rewards, but because Solana's staking is structurally concentrated, it could potentially amplify centralization risks.
- Concerns about governance capture, vulnerability to manipulation, and potential for coordinated actions by large validators have been raised, as about 20 of the largest validators control just over one-third of all staked SOL tokens.
- The SEC's delay in approving crypto ETFs, including the Solana ETF, is reflective of cautiousness around these systemic risks, with events like the blocking of two staff-approved multi-asset crypto ETFs adding to the regulatory environment's challenges.
- The SEC's decisions on crypto ETF approvals have been marked by delays and mixed signals, yet the proposed ETF would offer investors regulated access to the native token belonging to Layer 1 blockchain Solana through traditional securities markets, despite the uncertainties.
- Analysts like Kadan Stadelmann, Chief Technology Officer at Komodo Platform, warn of structural risks inherent in Solana's PoS design that regulators must address, emphasizing the need for the Solana network to improve its decentralization metrics to alleviate concerns.
- The regulatory approval process for this ETF is a critical step in bringing crypto ETF treatments in line with traditional asset classes, as both Cboe BZX and NYSE Arca seek to fundamentally change how crypto ETFs get approved.
