As the U.S. regulatory environment likely becomes more favorable to cryptocurrency and blockchain technology companies in the coming years, interest in a Solana exchange traded fund (ETF) has picked up. The Solana blockchain platform has gained in popularity and its Solana token usually ranks among the top five cryptocurrencies by market capitalization.

A number of major cryptocurrency companies, including Bitwise, VanEck, 21Shares, and Canary Capital, have filed a Form S-1 registration statement with the Securities and Exchange Commission (SEC) for a spot Solana ETF. The proposed ETF would trade on the Chicago Board Options Exchange (CBOE). In addition to filing a Form S-1 registration statement, the CBOE submitted 19b-4 forms with the SEC to seek approval of the Solana ETF. The ETF applications are currently under review by the SEC.

The Solana network is maintained by a decentralized user base. The network facilities the exchange of Solana tokens and the writing of smart contracts. A number of leading decentralized finance (DeFi) projects are hosted in the Solana ecosystem. Solana uses a consensus algorithm called Proof of History (PoH), which creates a historical record of the order of events. The other major types of crypto consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS).

At the beginning of 2024, the SEC approved the first spot Bitcoin ETFs. Spot Bitcoin ETFs generally track the performance of Bitcoin. They provide investors with a way to access the Bitcoin markets without holding Bitcoin directly.

Bitwise, VanEck, and 21Shares are currently already in the Bitcoin and Ethereum ETF markets. Ethereum is currently ranked the second largest cryptocurrency by market capitalization after Bitcoin. Other examples of Ethereum ETFs include the iShares Ethereum Trust ETF and the Fidelity Ethereum Fund. Other examples of Bitcoin ETFs include the Franklin Templeton Digital Holdings Trust, the Grayscale Bitcoin Trust, and the Invesco Galaxy Bitcoin ETF.

The Solana ETF will provide investors with exposure to the price of Solana, without directly holding Solana tokens. Investors will purchase shares of beneficial interest from the Solana ETF. Such shares of beneficial interest will trade on the CBOE BZX Exchange. The Solana ETF will directly hold Solana tokens and establish the net asset value (NAV) by looking at a pricing index.

Regardless of whether Bitwise, VanEck, 21Shares, and Canary Capital get approval to sponsor and manage a Solana ETF, there is still potential regulatory uncertainty associated with Solana. U.S. regulators have previously maintained that Bitcoin and Ethereum should be classified as commodities, rather than securities. If Solana were classified as a security, it would necessitate additional regulatory disclosures and may require the funds to make structural changes. Therefore, it is critical that regulators come to view Solana as a commodity. The classification of Solana and other cryptocurrencies as securities or non-securities is still an open question.

The recent announcement that Gary Gensler would step down from his position as head of the SEC in January 2025 has renewed optimism that the Solana ETF would be approved in 2025. Under Gensler’s leadership, the SEC has taken a strict approach to cryptocurrency regulation.