SEC Clarifies Staking Activities Not Securities Offerings

The US Securities and Exchange Commission (SEC) has provided clarity on the regulatory status of protocol staking activities within Proof-of-Stake (PoS) networks. In a statement released by the SEC’s Division of Corporation Finance on May 29, it was clarified that certain staking activities do not constitute securities offerings under federal law. This guidance is significant as it addresses the growing interest and participation in PoS networks, where users can act as "Node Operators" by staking crypto assets to validate new blocks and earn rewards.

The SEC's statement covers three primary types of staking activities: self (or solo) staking, self-custodial staking directly with third parties, and custodial arrangements. In self staking, node operators stake their own crypto assets. In self-custodial staking, users authorize a third party to perform verification operations while retaining ownership of their assets and private keys. Custodial arrangements involve a third party holding the assets in a controlled wallet for staking purposes without transferring ownership or using them for other activities like lending or speculation.

The Division determined that staking rewards are “payments to the Node Operator in exchange for the services it provides to the network rather than profits derived from the entrepreneurial or managerial efforts of others.” This distinction is crucial as it exempts these activities from the need to register transactions with the Commission under the Securities Act or qualify for exemptions from registration requirements. The guidance also addresses ancillary staking services, such as slashing coverage, early unbonding, alternate rewards payment schedules, and asset aggregation, determining these to be “administrative or ministerial in nature” rather than entrepreneurial or managerial activities.

For custodial arrangements, the SEC noted that “the custodian does not decide whether, when, or how much of an owner’s Covered Crypto Assets to stake. The custodian simply acts as an agent in connection with staking the deposited Covered Crypto Assets on behalf of the owner.” This clarification ensures that custodians are not seen as decision-makers in the staking process, further supporting the non-securities classification of these activities.

This development is expected to provide a clearer regulatory framework for staking activities in the crypto industry. It aligns with the SEC's previous stance on Proof-of-Work (PoW) mining activities, which were also confirmed not to fall under securities regulations. The clarification is part of the SEC's ongoing efforts to regulate the crypto space, ensuring that innovative technologies can thrive while protecting investors. By providing this guidance, the SEC aims to foster a more transparent and compliant environment for participants in PoS networks, encouraging further innovation and adoption in the crypto ecosystem.