Crypto Industry Seeks SEC Guidance on Staking Amid Regulatory Uncertainty

The cryptocurrency industry is urging the US Securities and Exchange Commission (SEC) to issue formal guidance on staking, a process that allows cryptocurrency holders to earn rewards by participating in the validation of transactions on a blockchain network. This call for clarity comes as the regulatory environment for digital assets continues to evolve, with industry leaders seeking more definitive guidance to navigate the complexities of compliance.

Allison Muehr, head of staking policy for the Crypto Council for Innovation, a trade group, emphasized that clarifying the SEC’s position on staking has become a top priority for the crypto industry. During a conference in New York, Muehr noted that while there has been more constructive engagement with the SEC in the past four months than in the previous four years, formal staking guidance is still lacking. She stated, “We’re about 25% of the way there.”

Under the previous US presidential administration, the SEC brought enforcement actions against several crypto firms for offering staking services it alleged were unregistered securities offerings. However, since the current administration took office, the SEC has softened its stance. In February, the agency issued guidance stating that memecoins do not qualify as investment contracts under US law. In April, the regulator clarified that stablecoins also do not qualify as securities if they are marketed solely as a means of making payments. Despite these developments, the SEC has yet to approve staking in exchange-traded funds (ETFs) or issue formal guidance on how staking services can be offered compliantly in the US.

Muehr expressed optimism that the SEC will eventually approve staking for cryptocurrency ETFs, including for proposed Solana (SOL) funds. She noted that the industry has had some productive meetings with the agency and is hopeful that a Solana ETF and even a staked Solana ETF will be available in the US soon. “Getting there means first getting the SEC comfortable with the structure,” she said.

The SEC is not the only agency the crypto industry is looking to persuade. Muehr also mentioned that the Internal Revenue Service (IRS), the top US tax authority, has taken a position the industry opposes. The IRS issued a statement saying staking rewards are service income, a stance with which the industry disagrees. Muehr stated that the industry continues to engage with the IRS on this issue.

Staking involves locking up cryptocurrency to support the operations of a blockchain network, with participants earning rewards in return. This process is integral to the functioning of many decentralized finance (DeFi) protocols and has gained significant traction among investors seeking passive income. However, the regulatory status of staking remains ambiguous, with some arguing that it should be treated as a security offering, while others contend that it is a utility function of the underlying blockchain.

The lack of clarity from the SEC has created a challenging environment for crypto companies, which must balance the need for innovation with the requirement to comply with regulatory standards. Industry leaders are urging the SEC to provide a definitive ruling on staking, as this would enable them to develop products and services that align with regulatory expectations. The outcome of the upcoming meeting between the SEC's Crypto Task Force and industry leaders will be closely watched, as it could set the tone for future regulatory developments in the crypto space.

The call for regulatory clarity on staking is part of a broader effort by the crypto industry to engage with regulators and shape the regulatory landscape. Industry stakeholders are actively seeking to establish a collaborative relationship with regulatory bodies, recognizing that clear and consistent regulations are essential for the long-term growth and stability of the crypto market. By working together, the industry and regulators can create an environment that fosters innovation while protecting investors and maintaining market integrity.