Hong Kong may allow staking for spot Ethereum ETFs as soon as this year: Animoca cofounder

Hong Kong asset managers are working to include staking within their spot ether exchange-traded funds in the hope of getting the staking reward feature approved this year, Animoca Brands Chairman Yat Siu said.

Siu told The Block in an interview that Hong Kong is “having discussions now for ETH staking” and that the likelihood of staking being approved in Asia ahead of the U.S. is an “almost foregone conclusion.”

“In terms of how quickly, there’s an optimistic side of me that wants it to happen within the year,” Siu said. “If we don't get much movement on staking within the year, then I would say the election outcome will be the other determinant in terms of how quickly that could happen in the U.S.”

HashKey, which co-manages two spot bitcoin and ether ETFs in Hong Kong with Bosera, is formulating a proposal to introduce ether staking. “We’ve come up with a plan designed to earn rewards without necessarily increasing risks,” said Livio Weng, chief executive officer of HashKey Exchange, adding that more details are under discussion and cannot be disclosed.

“We hope to advance some explorations in this area [of ether staking] in a compliant and controlled manner without increasing risks,” Weng said.

Blockdaemon, a blockchain infrastructure provider, is also in talks with Hong Kong ETF issuers and custodians to explore the possibility of offering staking services for the ETFs, according to Glenn Woo, head of sales for APAC at Blockdaemon.

“Based on my discussion this week and last week with the participants, the issuers, the VATPS [and] the custodians, we all kind of have the positive outlook in terms of getting that [ether staking] approved as well,” Woo said. 

Woo added that the industry participants aim to have the staking feature approved as soon as this year “because that’s the biggest missing piece and it looks like there’s a consensus that this is what's missing.”

“I'm quite hopeful that it’s going to materialize fairly soon,” Woo said, explaining that Blockdaemon has already offered staking services for some European exchange-traded products.

Hong Kong’s Securities and Futures Commission did not immediately respond to The Block’s request for comment.

Hong Kong’s competitive edge?

Despite the initial hype surrounding spot crypto ETFs in Hong Kong, their performance has been relatively underwhelming compared to their U.S. counterparts. 

The three Hong Kong spot bitcoin ETFs recorded a total daily trading volume of $6.08 million on Thursday after logging $2.24 million on Wednesday and $1.96 million on Tuesday, according to The Block’s dashboard. In comparison, the 11 spot bitcoin ETFs in the U.S. saw $1.42 billion in total trading volume on Thursday, following Wednesday’s $2.09 billion.

“I do agree with the premise that Hong Kong should be able to be bigger because of the fact that it can attract both buyers from east and west,” said Siu of Animoca. “But it must be competitive. It must be priced at least the same, if not lower than that of its U.S. counterpart.”

The possibility of staking rewards could serve as a competitive advantage for Hong Kong spot ether ETFs to U.S. ones, as the U.S. Securities and Exchange Commission has made it clear that it won’t allow such a feature — at least for the time being.

“That could be a competitive edge because if you are able to get staking, then there is a benefit for that,” Siu said. “I think of this as baby steps — the first steps. Now, the industry has to push on other areas to open it up. I think staking could be the big, big differentiator for Hong Kong.”

Woo of Blockdaemon holds similar views to Siu regarding investors’ interest. “The lack of a staking feature is deterring a lot of potential Ethereum ETF buyers from getting in,” Woo said. “The potential opportunity cost of 3% to 4% is pretty big.”

Woo explained that the Hong Kong government is aware of the gap. “There is a drive from the Hong Kong government and the regulator to do things faster,” he continued. “I would say education and the [ETF issuers’ potential] staking strategy will have to be well communicated to the regulator."