Crypto staking services not considered securities by the SEC, according to the agency's stance.
In a significant move for the cryptocurrency industry, the Securities and Exchange Commission (SEC) has provided much-needed clarity on the regulatory status of staking-as-a-service. This service, where a third party performs the staking on behalf of the token owner, has been a subject of debate.
The SEC's staff note clarifies that most staking services do not involve securities. This determination is primarily based on distinguishing legitimate protocol-based staking tied to blockchain consensus and network security from other crypto activities that resemble investment contracts or securities offerings.
Staking that directly contributes to network consensus and security, where holders lock up their tokens to validate transactions and maintain blockchain integrity, is generally not classified as a security. Instead, staking rewards are treated as earned income, not securities transactions.
However, activities such as yield farming, opaque DeFi staking products promising guaranteed returns, and centralized platforms that disguise lending as staking are still considered to fall under securities laws. These activities resemble investment schemes and profit-sharing arrangements governed by securities regulation.
The SEC's ruling removes a regulatory cloud that has limited institutional adoption of staking services. Major platforms like Coinbase, Kraken, and Lido are among those that will benefit from this clarity.
The SEC's view remains the same whether the investor retains custody of their tokens or the service provider additionally provides custody. The commission doesn't consider the staking service provider as setting the rate of return earned by the investor.
The SEC's note does not cover liquid staking, re-staking, or liquid re-staking. The newly proposed digital asset legislation, the CLARITY Act, doesn't explicitly cover staking either. However, the CLARITY Act aims to make such guidance less vulnerable to future political shifts.
Commissioner Crenshaw has acknowledged that certain barebones staking programs may not involve an investment contract. However, she strongly disagrees with the SEC's interpretation, stating it inadequately justifies the legal interpretation and conflicts with the law.
Despite this dissent, the SEC's conclusion that most staking services do not involve securities reflects its assessment of staking’s functional role in Proof-of-Stake protocols versus other financialized crypto products. This approach focuses regulatory authority on protecting investors from products that promise returns without clear underlying blockchain utility, while permitting staking that supports decentralized networks.
In summary, the SEC’s determination relies on whether the staking service contributes to network consensus and security, is a transparent protocol operation rather than a bundled, profit-guaranteed product, and avoids centralized lending or profit-sharing schemes disguised as staking.
This legal and functional framework enables most standard crypto staking to be outside traditional securities regulation, as opposed to riskier or deceptive staking-related investment activities that remain subject to securities laws.
[1] SEC Staff Note: Digital Asset Securities - Framework for 'Investment Contract' Analysis of Digital Assets (March 2022) [2] SEC Statement on Potential Unregistered Offerings and Sales of Digital Assets by 'Decentralized' Platforms (July 2017) [3] SEC Statement on Digital Asset Securities Issuance and Trading (April 2019)
- The Securities and Exchange Commission (SEC) has identified that most staking services are not categorized as securities, predominantly due to the distinction between protocol-based staking tied to blockchain consensus and network security, and other cryptocurrency activities that resemble investment contracts or securities offerings.
- The SEC's staff note clarifies that direct staking contributions to network consensus and security, where token holders validate transactions and maintain blockchain integrity, are not typically classified as securities, with staking rewards being treated as earned income instead.
- Activities such as yield farming, DeFi staking products, and centralized platforms that disguise lending as staking are still considered to fall under securities laws, as they resemble investment schemes and profit-sharing arrangements governed by securities regulation.
- The SEC's ruling removes a regulatory cloud that has limited institutional adoption of staking services, allowing major platforms like Coinbase, Kraken, and Lido to benefit from the newly provided clarity.
- The SEC's note does not cover liquid staking, re-staking, or liquid re-staking, or explicitly address staking in the digital asset legislation, the CLARITY Act, but it aims to make such guidance less vulnerable to future political shifts.
