Ongoing discussions surrounding the proposed Clarity Act have sparked renewed debate about how exchange-traded funds backed by digital assets, including XRP, could be used by investors in the future. The proposed bill in the U.S. Senate aims to clarify cryptocurrency regulations, potentially impacting how digital assets are classified and used in financial products. This could bring much-needed clarity to the crypto industry, affecting assets such as XRP, Solana, and Dogecoin.
At the center of the discussion is the possibility that XRP-backed exchange-traded funds could function as more than simple investment vehicles. Some market participants believe that, under certain conditions, these products could offer functionality resembling custodial financial accounts, particularly if regulatory clarity allows for broader use of in-kind creation and redemption mechanisms.
Regulatory Changes Could Alter XRP’s Treatment
The Clarity Act is designed to reduce uncertainty surrounding digital asset oversight by defining when a token should fall under securities regulation versus alternative frameworks. One provision of the proposal suggests that digital assets serving as the primary holdings of U.S.-listed exchange-traded funds by January 1, 2026, could be subject to lighter disclosure obligations.
This provision would apply to a select group of cryptocurrencies, including XRP, Solana, Litecoin, Hedera, Dogecoin, and Chainlink. While the bill does not explicitly redefine these assets as commodities, the regulatory relief outlined would place them closer to commodity-style treatment, similar to Bitcoin and Ethereum. Lawmakers are still debating the bill’s scope and language, with no conclusion reached yet.
Community Interpretation of ETF Functionality
Discussion around XRP ETFs gained traction after commentary from XRP community analyst Chad Steingraber, who highlighted the structure of in-kind ETF mechanisms. In such models, the underlying asset is exchanged directly for fund shares, rather than being converted into cash first. Steingraber argued that this setup creates flexibility that could appeal to long-term holders once regulatory standards are firmly established.
According to this interpretation, investors might see XRP ETFs as a regulated environment where exposure to the asset can be maintained while benefiting from traditional market protections. In theory, this could allow investors to move between holding XRP directly on the ledger and holding ETF shares, depending on their needs at a given time.
The XRP ETF’s are also In-Kind Funds, so you can deposit XRP directly into the fund in exchange for the exact value in shares. Most in general will choose this option post law. There are many advantages to this, you will be able to use the ETF like a “bank”.
Steingraber suggested that this ability to alternate between direct ownership and fund-based exposure could encourage broader participation, particularly among those seeking regulatory oversight without fully exiting the XRP ecosystem.
Structural and Legal Limitations Remain
Despite growing interest in this concept, important limitations must be acknowledged. In practice, only authorized participants, typically large financial institutions, are permitted to create or redeem ETF shares directly through in-kind transfers. Retail investors cannot send XRP directly to an ETF issuer. Instead, they access the fund by buying or selling shares on secondary markets.
Additionally, exchange-traded funds do not provide many services traditionally associated with banking. They do not offer insured deposits, credit facilities, or transactional services. As a result, while ETFs may provide regulated exposure and liquidity, they cannot replace the full functionality of financial institutions.
Tax considerations also remain relevant. Moving digital assets into an ETF could trigger taxes, like capital gains, depending on the investor’s cost basis and location.
XRP-backed ETFs have already demonstrated notable demand since their launch in November 2025. Cumulative net inflows across these products have reached approximately $1.37 billion, reflecting sustained interest from both institutional and retail participants. This growth has contributed to increased attention on how regulatory developments might further expand their role within the financial system.
As lawmakers continue to refine the Clarity Act, market participants remain focused on how its provisions could reshape access to digital assets. The legislation could significantly change how regulated products interact with blockchain assets, even if ETFs and banks aren’t exactly alike.
For now, XRP ETFs remain investment instruments rather than financial accounts. However, continued regulatory evolution may broaden investors’ engagement with them within established market structures.