FR 2025-04505

Summary of the Document

The proposed rule change submitted by Cboe BZX Exchange, Inc. talks about listing and trading shares of the Franklin Solana ETF. Solana, often abbreviated as SOL, is a form of digital cryptocurrency, similar to well-known digital currencies like Bitcoin and Ethereum. This proposal suggests that investors can buy shares of an ETF, allowing them to invest in Solana in a controlled and regulated manner. This move is intended to offer a safer investment opportunity for those interested in cryptocurrencies by mitigating risks associated with unregulated markets.

Significant Issues and Concerns

A notable issue with the document is its heavy use of financial and legal jargon, making it challenging for individuals without a specialized background to understand. Terms like "spot commodities," "Winklevoss Test," and "regulated market of significant size" are not commonly used in everyday language. Additionally, there is an over-reliance on references to other legal cases and documents, which makes the text even more complex. For someone not acquainted with these precedents, following the document's arguments can become a demanding task.

Another concern is the use of acronyms like SOL, ETP (Exchange-Traded Products), and CME (Chicago Mercantile Exchange) without providing immediate definitions or explanations. This complicates understanding for readers unfamiliar with these terms. Furthermore, the text is dense with lengthy paragraphs that could benefit from being broken down into simpler sections.

Impact on the Public

Broadly, the proposal aims to provide a regulated option for investing in Solana, potentially offering investors peace of mind by reducing the risks associated with cryptocurrency trading. The public stands to benefit from reduced price volatility and lower management fees compared to less regulated cryptocurrency markets. However, the overall understanding and engagement with the proposal by the general public may be hindered by the document’s complexity and lack of clarity.

Potential Impact on Stakeholders

Positive Impact:

• Investors: Individuals interested in diversifying their portfolios to include cryptocurrencies like Solana would have access to a regulated, transparent trading option. This could provide added security and possibly better investment outcomes by minimizing risks tied to decentralization and market manipulation.

• Financial Markets: Listing the Franklin Solana ETF could enhance trading volumes and liquidity in the digital asset market. For exchanges, this could mean increased trading activity and associated revenues.

Negative Impact:

• Regulatory Bodies: Ensuring compliance with existing financial regulations may become more challenging with the introduction of an ETF based on a relatively new digital asset like Solana. Monitoring such financial instruments may require additional resources.

• Cryptocurrency Platforms: Exchanges and platforms operating in unregulated environments or with higher fees might face competition from more regulated and competitive ETF offerings, potentially impacting their user base and revenue streams.

Conclusion

Overall, while the proposal to list and trade the Franklin Solana ETF opens up new opportunities for safe investment in cryptocurrencies, the document's complexity limits its accessibility. It will be crucial for exchanges and financial institutions to provide clear, easily understandable information to ensure that potential investors can make informed decisions. Additionally, regulatory bodies will need to carefully consider the implications of such financial innovations to maintain market stability and investor confidence.

The Federal Register document details a proposal by the Cboe BZX Exchange, Inc. to list and trade shares of the Franklin Solana ETF. This analysis will focus exclusively on the financial references included in the document related to the proposed ETF, which would hold Solana, a digital asset or cryptocurrency referred to as SOL. The proposal involves the introduction of this new financial instrument to be traded on an exchange under specific regulatory conditions.

Financial Framework and Market Size

The document highlights that over the past few years, U.S. investor exposure to SOL has grown into the billions of dollars, with a fully diluted market cap of greater than $150 billion. This significant market size is emphasized as a mitigating factor against policy concerns outlined in the Exchange Act. The Exchange Act's concerns are addressed by demonstrating the extensive market presence of SOL as a means to justify its inclusion as an exchange-traded product, noting the challenges inherent in manipulating such a large and decentralized asset market.

The financial references serve to underline the economic value and potential of SOL within the broader market. This substantial value supports arguments about the feasibility and justification of the Franklin Solana ETF, proposing that the ETF provides a regulated and transparent vehicle for accessing this value.

Interaction with Exchange Rules

Embedded within the proposal are references to the mechanisms of how shares of the ETF would be priced and traded. The document notes the minimum price variations on the exchange, which are $0.01 for shares above $1.00 and $0.0001 for shares below $1.00. These specifications pertain to rules governing equity securities and help set expectations about how the ETF would behave in market terms, minimizing discrepancies and ensuring smooth transactions.

The establishment of specific pricing frameworks is designed to support the prevention of fraudulent and manipulative acts. This is particularly relevant in light of issues raised in the document about the complexity of understanding such rules, which may pose a challenge to potential investors not familiar with securities regulations.

Economic Benefits and Staking Rewards

The Franklin Solana ETF's structure as outlined includes opportunities for staking SOL, where validators on the Solana Network are rewarded in the form of SOL tokens. This staking is framed as potentially advantageous because it can provide additional returns to investors without selling the underlying asset. However, the document distinguishes this from "staking as a service" to satisfy regulatory concerns, a distinction that may not be immediately clear to non-experts.

The economic benefit of staking rewards is presented as an innovative financial mechanism that aligns with investor interests, allowing the ETF to mimic dividend payouts in equity markets. This is significant for improving investor returns and aligns with regulatory aims to protect investors by potentially offering reduced fees compared to over-the-counter SOL Funds.

Relevance to Identified Issues

The financial considerations addressed in the document play a crucial role in managing the issues related to complexity and legal terminologies noted by readers. The dense language used in describing financial concepts like staking and asset valuation involves jargon that may obfuscate the document's core proposals. Simplifying these descriptions or providing additional explanations might help general audiences better understand the economic implications of investing in SOL through the proposed ETF.

While the document prescribes a framework for valuation with the CME CF Solana-Dollar Reference Rate, the financial logic behind these valuations remains complex. Ensuring clear dissemination of such financial data can address issues by fostering transparency and maintaining investor confidence.

In summary, financial references within the document emphasize the robustness and market readiness of the proposed Franklin Solana ETF. The significant market cap of SOL is used as a salient point supporting the ETF's utility and potential regulatory acceptance, despite complex legal and procedural overlays which may present barriers to understanding for the average investor.