The SEC has raised serious legal questions about the proposed Solana and Ethereum ETFs by REX Shares and Osprey Funds.

Solana (SOL) and Ethereum (ETH) exchange-traded funds have stumbled on a major regulatory roadblock. In a filing dated May 30, the U.S. Securities and Exchange Commission flagged legal concerns regarding the proposed REX Shares and Osprey Funds ETFs.

The agency highlighted seven ETFs, including the REX-Osprey ETH ETF and REX-Osprey SOL ETF, citing “unresolved questions” surrounding their legal structure. Specifically, the SEC questioned whether these funds, as currently structured, qualify as “investment companies.”

For a fund to meet that definition, it must primarily invest or trade in securities, or have securities make up at least 40% of its assets. As such, the SEC indicated that the Form N-1A filing submitted may be improper. If the funds do not qualify as investment companies, the filing could be considered misleading to investors.

The SEC also raised concerns about compliance with Rule 6c-11 under the Investment Company Act, which governs exchange listing standards for ETFs. Before approval can proceed, the agency has asked REX Shares and Osprey Funds to update their filings.

Issues with REX-Osprey Ethereum and Solana ETFs

The proposed Solana and Ethereum ETFs by REX Shares and Osprey Funds are legally unconventional. According to Bloomberg analyst James Seyffart, the funds use several “clever workarounds” to bypass standard listing requirements.

For example, the funds are structured as C corporations—an uncommon setup for ETFs. This theoretically allows them to sidestep whether ETH or SOL are considered “securities” under the Investment Company Act. In addition, the companies are using Cayman Islands subsidiaries to avoid regulations governing crypto custodians.

Due to these regulatory maneuvers, the funds went into effect on May 30 without requiring SEC approval through the 19b-4 process. However, as of June 2, no exchange has listed the fund.