How Will VanEck’s Avalanche ETF Incorporate Staking Rewards for AVAX Investors?

VanEck’s new Avalanche ETF will include rewards earned from staking AVAX tokens, adding these earnings directly to the fund’s value. The fund will work with Coinbase to manage staking and deduct a small service fee before passing rewards to investors.

What happened

VanEck has filed an application with the U.S. Securities and Exchange Commission (SEC) to launch an Exchange-Traded Fund (ETF) focused on Avalanche (AVAX) tokens that will integrate staking rewards into the fund’s structure. This ETF will not only provide investors with exposure to AVAX price movements but will also accumulate staking rewards generated by the AVAX tokens held within the fund. These rewards will then be distributed to ETF shareholders, effectively incorporating staking yields into the fund’s net asset value (NAV).

According to disclosures summarized by industry sources, VanEck plans to work with Coinbase to manage the staking process on behalf of the ETF investors. Coinbase will handle the technical aspects of locking AVAX tokens and earning rewards while VanEck will deduct a small service fee before passing on the staking earnings to shareholders. The fund will calculate and report staking rewards on a daily basis, with ongoing disclosures designed to provide transparency on how the rewards impact the NAV and overall performance.

This approach represents a departure from traditional ETFs, which typically track asset price appreciation and dividends without embedding active yield-generating mechanisms. By integrating staking rewards directly into the fund, VanEck is creating one of the first regulated ETFs to offer exposure to both capital gains and staking yields within a single product.

Avalanche’s proof-of-stake (PoS) consensus requires token holders to lock AVAX tokens to secure the network and earn rewards. Normally, this involves direct token ownership and active participation in staking. VanEck’s ETF abstracts this process by managing staking centrally, allowing investors to benefit from rewards without engaging with the technical or operational complexities.

Why this matters

VanEck’s integration of staking rewards into its Avalanche ETF redefines the traditional ETF model by transforming it from a passive price-tracking vehicle into an active yield-generating investment product. This innovation could broaden the appeal of crypto ETFs by combining the potential for asset appreciation with incremental income from staking rewards, attracting investors who seek regulated exposure to crypto assets while also earning yield.

The transparent reward distribution mechanism—with daily calculations and reporting—addresses a key concern in staking investments: variability and uncertainty of rewards. By embedding these processes into the ETF’s NAV and providing clear disclosures, VanEck is aiming to build investor trust and set a new standard for how staking yields can be incorporated in regulated financial products.

More broadly, this ETF could catalyze wider adoption of staking within regulated markets by demonstrating that decentralized finance (DeFi)-style yield mechanisms can be integrated into traditional investment structures. If successful, it may pave the way for other PoS tokens to be included in similar yield-bearing ETFs, potentially bridging the gap between crypto-native protocols and mainstream institutional investors.

However, the model also raises important structural questions about risk management, custody, and regulatory oversight. How staking rewards and associated risks are managed within a regulated ETF framework could influence future product designs and regulatory approaches to crypto asset investment vehicles.

What remains unclear

Despite the detailed outline of the ETF’s reward distribution mechanism, several critical aspects remain undisclosed or insufficiently explained:

Staking risk management: The filings and reports do not clarify how VanEck will address staking slashing risks—losses incurred due to network penalties or validator misbehavior—and how these would be reflected in the ETF’s NAV or investor returns.
Custody and technical operations: The exact custody arrangements and technical procedures for securely staking AVAX tokens on behalf of investors are not fully detailed. This includes how validator nodes will be selected or operated and how operational risks will be mitigated.
Regulatory treatment beyond the SEC: It is uncertain how other regulatory bodies, such as FINRA or international authorities, will view the integration of staking rewards in ETFs, especially given the evolving nature of crypto regulation.
Impact of reward variability: The effect of fluctuating staking rewards and network performance on the ETF’s liquidity, pricing dynamics, and investor experience is not fully explained.
Replicability for other tokens: Whether VanEck’s staking reward integration model can be applied to other PoS tokens with different staking mechanisms, risk profiles, or technical requirements remains an open question.
Tax implications: There is no information on how staking rewards distributed through the ETF will be treated for tax purposes by investors, an important consideration for regulated investment products.
Third-party verification: No independent audits or third-party verifications of the staking reward distribution process have been reported to date.

What to watch next

SEC review and approval process for VanEck’s Avalanche ETF application, including any regulatory feedback or conditions related to staking rewards integration.
Further disclosures from VanEck detailing custody arrangements, staking operations, and risk mitigation strategies, especially concerning slashing risks and validator management.
Updates on the partnership with Coinbase or other service providers managing staking operations, including technical and security protocols.
Market reception and investor adoption once the ETF launches, particularly whether the staking rewards feature attracts new investor segments.
Regulatory developments or guidance from other bodies, domestically or internationally, that address staking rewards within regulated investment vehicles.

VanEck’s Avalanche ETF proposal marks a significant innovation in the ETF landscape by embedding staking rewards directly into the fund’s structure. While the concept promises to broaden regulated crypto investment options and enhance yield potential, key operational and regulatory details remain unclear. How these open questions are resolved will be critical to the ETF’s success and could influence the future integration of decentralized finance elements into traditional financial products.

Source: https://www.coindesk.com/business/2025/12/20/vaneck-s-new-avalanche-etf-filing-to-include-staking-rewards-for-avax-investors. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.