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- The SEC clarified that some staking on PoS networks is not a securities transaction.
- Certain services like slashing protection or early unstaking are not considered securities offerings.
- Ownership and control of crypto assets remain with the staker in many staking setups.
The U.S. Securities and Exchange Commission’s Division of Corporation Finance recently issued a clear statement. It said that specific staking activities within public, permissionless proof-of-stake (PoS) networks do not fall under securities laws.
This would mean that persons or entities staking crypto would not be required to register with the SEC under the Securities Act or the Exchange Act. The activities, referred to as “Protocol Staking,” use cryptocurrency assets to facilitate the operation of a blockchain network.
Node operators stake their assets to validate the transactions and secure the network, for which they are rewarded. Such rewards are often in new tokens or transaction fees. The SEC concluded that this work is more technical than managerial and not performed through the business efforts of another entity. Therefore, it failed to satisfy the legal test for investment contracts.
SEC Clarifies When Staking Is Not a Security
Three common types of staking crypto assets exist. In self-staking, the asset owner runs their own node and therefore retains control of their assets while earning rewards soley based on their own efforts. In self-custodial staking with a third party, the asset owner grants validation rights to another party but still retains control of the assets.
A third party runs the node and distributes rewards to the owner. Finally, custodial staking involves handing over control of the assets to a custodian who stakes them on behalf of the owner. In all three scenarios, rewards do not depend on one’s business acumen or on decisions others make.
The process is technical and rule-based. The protocol software automatically selects validators based on their stake. This completely hands off the management to others, one of the main characteristics of a securities transaction.
Staking Services That Smooth the Process
Some of these services may offer staking-related benefits, such as slashings insurance or early access to unstaked funds. Others help in more efficient reward distribution or enable several users to pool their assets. However, according to the SEC, all these services are administrative.
They do not create any sort of business relationship that would turn the staking activity into an offering of securities. Their purpose is simply to facilitate the staking process. These views aim to help the cryptocurrency industry understand when federal securities laws apply.
The message is clearer: staking activities that are technical, procedural, and not business-oriented or promotional might not be considered securities. This ruling provides certainty and allows for greater innovation within the space.
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