(Bloomberg) -- Hong Kong is considering allowing staking for exchange-traded funds investing directly in Ether, potentially unlocking a source of passive income that has been removed from prospective US issuers’ plans. 

The Securities and Futures Commission has held discussions with the city’s crypto ETF issuers about providing staking services via licensed platforms, after fielding proposals in recent weeks, according to people familiar with the matter. 

The talks are ongoing and there’s no clear timeline for a decision, the people added, asking to not be identified discussing private information. A spokesperson for the SFC declined to comment.

If approved, staking yields could bolster demand for Hong Kong’s spot-crypto ETFs, which have met with lukewarm demand since launching in April. It could also give the Asian finance hub a head start on the US, where prospects have improved recently of a regulatory green light for spot-Ether ETFs — albeit without staking. 

US issuers including Fidelity Investments and Ark Investment Management have scrapped plans for staking the Ether they would purchase for their proposed ETF products. The decisions, while potentially smoothing the path with US regulators, may make the funds less attractive than buying Ether directly on crypto exchanges.

Read more: A Hot Button Issue for SEC Threatens to Erode Ether-ETF Demand

Investors can earn passive income through staking, a process that involves locking tokens on the Ethereum network to help validate transactions. Ether staking currently pays out the equivalent of about 4% annually in the form of more coins.

Serra Wei, chief executive officer of Aegis Custody, said discussions between Hong Kong ETF issuers and regulators on staking have been “healthy,” adding that it would fit within the local regulatory regime.  

“It would be a milestone for Hong Kong to add staking into spot-ETH ETFs,” said Wei, who hasn’t been involved in talks with the SFC. Aegis provides custody technology solutions to banks in Hong Kong. 

Hong Kong is vying with the likes of Singapore and Dubai to become a digital-asset hub after rolling out a dedicated regulatory regime last year. Officials are trying to restore the city’s reputation as a modern financial center following a crackdown on dissent that dulled its allure.

Aside from ETFs, Hong Kong is considering a batch of applications to expand its roster of licensed digital-asset exchanges as well as working on a framework for stablecoins, which are typically pegged 1-1 to fiat currency and backed by reserves of cash and bonds.

(Updates to say SFC declined to comment.)

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