Safe Harbor for Trusts Staking Digital Assets

Client Alert

On November 10, 2025, the IRS issued Revenue Procedure 2025-31, providing formal guidance addressing how trusts that qualify as investment trusts under Treas. Reg. § 301.7701-4(c) and grantor trusts for Federal income tax purposes can engage in digital asset staking without jeopardizing their favorable tax treatment. This guidance clarifies the conditions under which staking activities may be conducted while maintaining classification as both an investment trust and a grantor trust. The procedure establishes a safe harbor with detailed structural and operational requirements for eligible trusts, providing greater certainty for trustees and beneficiaries navigating digital asset investments. In particular, the safe harbor provides sponsors of trusts operating as crypto asset exchange-traded products (“ETPs”) a grantor trust compliant path to timely meet redemption requests in circumstances when the “unstaking” of a staked digital asset takes longer than the trust’s normal T+1 settlement cycle for redemptions.

Key Take Aways

• The requirement that a grantor trust make quarterly distributions will require most fund sponsors to reconsider their trust agreements, as that has not been a feature of most crypto asset ETPs launched to date.
• The requirement that a grantor trust be indemnified for slashing risk lacks specifics on the details of the arrangement. Presumably, indemnification could come from any the sponsor, the custodian or the staking providers themselves.
• The safe harbor expressly permits the use of credit facilities for the purpose of meeting trust redemptions. While grantor trusts have regularly used credit facilities, there was some doubt among the industry that the IRS would permit their use in connection with the safe harbor.

The safe harbor may not reflect historic market practice but provides useful certainty for trusts going forward. New trusts or trusts amending their organization documents may consider coming as close as possible to the terms of the safe harbor.

Revenue Procedure 2025-31

An investment trust under Treas. Reg. § 301.7701-4(c) is not classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holder or engage in a trade or business. The classification as an investment trust allows the trust to be treated as a grantor trust for tax purposes. The rise of proof-of-stake blockchain networks has created uncertainty regarding whether staking digital assets constitutes a power to vary investments, potentially disqualifying a trust from investment trust and grantor trust treatment. 

Rev. Proc. 2025-31 address this uncertainty by establishing a safe harbor under which certain investment trusts and grantor trusts operating as ETPs may engage in limited staking activity without jeopardizing their tax status. While the safe harbor requirements do not fully align with current market practices, they are intended to encourage market participants to move toward compliance.

The safe harbor applies to a trust that:

• would be treated for Federal income tax purposes as a trust that qualifies as an investment trust under § 301.7701-4(c), and as a grantor trust, if the trust agreement did not authorize staking and the trust’s digital assets were not staked; and
• is in existence prior to the date on which its trust agreement first authorizes staking and related activities in a manner that satisfies each of the safe harbor requirements, qualified as an investment trust under § 301.7701-4(c), and as a grantor trust, immediately before that date.

The procedure also provides a nine-month window, beginning November 10, 2025, during which existing trusts may amend their trust agreements to adopt the safe harbor requirements; such amendments will not affect the trust’s qualification as an investment trust under § 301.7701-4(c) or as a grantor trust, provided the safe harbor conditions are met.

Safe Harbor Requirements

To rely on the safe harbor, a trust must satisfy all of the following conditions in section 6.02 of the revenue procedure:

1. Interests in the trust are traded on a national securities exchange. The trust’s activities comply with the SEC’s regulations and rules. The trust’s disclosure regarding the staking of its digital assets has been reviewed and approved by the SEC. The trust’s assets and activities are described in the May 29, 2025, Statement on Certain Protocol Staking Activities of the SEC’s Division of Corporation Finance. The trust has written liquidity risk policies and procedures that comply with the rules of the national securities exchange on which the trust interests are listed and traded (such policies are generally required by the generic listing standards of the exchanges, as described in our Client Alert available here).
2. The trust owns only cash and units of a single type of digital asset (as defined by section 6045(g)(3)(D)), transactions for which are carried out on a permissionless network that uses a proof-of-stake consensus mechanism to validate those transactions.
3. The trust’s digital assets are held by a custodian, acting on behalf of the trust, at digital asset addresses controlled by the custodian. Only the custodian has access to the private keys associated with those digital asset addresses; accordingly, only the custodian can affect a sale, transfer, or exercise the rights of ownership over the trust’s digital assets, including while those assets are staked. For Federal income tax purposes, the trust retains ownership of the digital assets at all times, including while they are staked.
4. The trust’s staking of its digital assets protects and conserves trust property by mitigating the risk that another party or group could control a majority of the total staked digital assets of that type and engage in transactions that could reduce the value of the trust’s digital assets.
5. The trust’s activities relating to digital assets are limited to: (i) accepting deposits of the digital asset or cash in exchange for newly issued interests in the trust; (ii) holding the digital assets and cash; (iii) paying trust expenses and selling digital assets for cash to pay trust expenses or to make cash redemptions of trust interests; (iv) purchasing additional digital assets with cash contributed to the trust; (v) distributing digital assets or cash to trust interest holders in redemption of their interests in the trust; (vi) selling digital assets for cash in connection with the trust’s liquidation; and (vii) directing the staking of its digital assets in a manner consistent with the applicable requirements of the national securities exchange on which the trust interests are traded and this safe harbor, including providing for a liquidity reserve to the extent provided in section 6.02(9) of the safe harbor and entering into a contingent liquidity arrangement to the extent provided in section 6.02(12) of the safe harbor. Pursuant to the trust agreement, the trust is prohibited from seeking to take advantage of variations in the market to improve the investments of trust interest holders, including variations based on the value of the digital assets or the amount of staking rewards.
6. The trust directs the staking of its digital assets through one or more custodians who facilitate the staking of the digital assets on the trust’s behalf with one or more staking providers. The trust and the sponsor are unrelated to the staking provider. The trustee, sponsor, or custodian performs all appropriate due diligence with regard to the selection of each staking provider and negotiates, on behalf of the trust, the provisions of the contract with the staking provider. The staking provider regularly enters into arrangements with unrelated persons involving similar activities, and such other persons are also unrelated to the trust, the custodian, and the sponsor. The staking provider bears its own expenses. The allocation of staking rewards between the staking provider and the custodian on behalf of the trust is an arm’s length allocation that is independent of the expenses of the staking provider or custodian, and may be stated as a percentage of the staking rewards derived from staking the trust’s digital assets. The other terms and conditions of the custodian’s arrangements with the staking provider reflect arm’s length terms.
7. The trust, the custodian in its capacity as such, and the sponsor have no legal right or arrangement to participate in or direct or control the activities of the staking provider in any way, and do not do so, except to direct the staking and unstaking of the trust’s digital assets as provided in the safe harbor.
8. All of the digital assets of the trust must be made available to the staking provider to be staked at all times, except as provided in sections 6.02(9), (10), (11), and (12) of the safe harbor.
9. When appropriate in the trustee’s or sponsor’s reasonable judgment to comply with the trust’s liquidity risk policies and procedures required by the national securities exchange on which the interests in the trust are listed and traded, a trust may stake less than all its digital assets to create and maintain a liquidity reserve. The trust’s liquidity risk policies and procedures must be based solely on factors relating to the requirement of the national securities exchange that assets be readily available to meet redemption requests within the required period. The trust may increase or decrease the liquidity reserve in compliance with its liquidity risk policies and procedures, provided that, to the extent the liquidity reserve is reduced, the trust shall resume making the digital assets not subject to the liquidity reserve available for staking as soon as and to the extent reasonably possible. On the occurrence of one or more of the events described in section 6.02(10) and (11) of the safe harbor, the trust shall direct the staking or unstaking of a necessary number of its digital assets to satisfy its liquidity reserve as soon as and to the extent reasonably possible.
10. In addition to holding in a liquidity reserve (as described in section 6.02(9) of the safe harbor), if any, digital assets that are not staked, the trust also may, on a short-term temporary basis and in connection with one or more of the following events, hold additional digital assets that are not staked, provided that the trust shall make such digital assets available for staking (subject to section 6.02(9) of the safe harbor, if applicable) as soon as and to the extent reasonably possible.
    1. the sale of digital assets for cash to pay trust expenses;
    2. the contribution of digital assets in connection with the creation of interests in the trust or distributions of digital assets to trust interest holders in redemption of their interests in the trust;
    3. the purchase of digital assets in connection with the creation of trust interests for cash or the sale of digital assets to make cash redemptions of trust interests; or
    4. the ownership of additional digital assets received as, or available for receipt, as staking rewards.
11. In addition to holding in a liquidity reserve (as described in section 6.02(9) of the safe harbor), if any, digital assets that are not staked, the trust also may, in connection with one or more of the following events, hold additional digital assets that are not staked, provided that the trust shall make such digital assets available for staking (subject to section 6.02(9) of the safe harbor, if applicable) as soon as and to the extent reasonably possible:
    1. obtaining or disposing of digital assets through the contingent liquidity arrangement described in section 6.02(12) of the safe harbor pursuant to applicable law or regulatory rules;
    2. the sale of digital assets for cash in connection with the trust’s liquidation;
    3. the need to take protective measures against potential systemic vulnerabilities in the network’s protocol, the staking smart contracts, or the validator client software;
    4. the cessation of the arrangement between the trust and a custodian, but only with respect to the digital assets affected by the cessation;
    5. the cessation of the arrangement between a custodian and a staking provider, but only with respect to the staked digital assets affected by the cessation; or
    6. a change in applicable law or regulation.
12. When appropriate in the trustee’s or sponsor’s reasonable judgment to comply with the trust’s liquidity risk policies and procedures required by the national securities exchange on which the interests in the trust are listed and traded, the trust may enter into a contingent liquidity arrangement intended to mitigate an adverse liquidity event that otherwise would prevent the fund from distributing digital assets or cash to trust interest holders in redemption of their interests in the trust, provided that the digital assets or cash obtained through the contingent liquidity arrangement are expected to be distributed, or included in a pool of assets expected to be distributed, in the near future. For purposes of the foregoing sentence, a contingent liquidity arrangement is (a) a lending facility or other arrangement permitting the trust to borrow cash or (b) an arrangement to sell or purchase digital assets for cash or digital assets on a current or deferred basis.
13. To protect or conserve the trust’s property, the trust’s digital assets are indemnified from slashing due to the activities of staking providers.
14. The only new assets received by the trust as a result of staking its digital assets are additional units, in the same form, of the single type of digital asset held by the trust. The trust’s staking rewards, net of trust expenses, are, in proportion to the trust interest holders’ relative interests in the trust, either distributed in-kind to trust interest holders or sold for cash and the proceeds distributed to trust interest holders, in each case on a periodic basis that is no less frequently than quarterly. The trust treats all staking rewards consistently.

Relevant Documents