Ethereum News Today: SEC Exempts Liquid Staking Tokens From Securities Rules Boosting ETF Prospects

The U.S. Securities and Exchange Commission (SEC) has granted regulatory clarity to liquid staking services, including Ethereum’s Lido and Solana’s Jito, confirming that their activities do not constitute securities offerings. The exemption, issued by the SEC’s Division of Corporation Finance, removes the need for these protocols to register with the agency under the Securities Act and allows them to continue issuing staking tokens and distributing rewards to users without regulatory scrutiny [2]. This move follows a broader initiative known as Project Crypto, which aims to provide clearer regulatory boundaries for the cryptocurrency industry [2].

Liquid staking services enable users to deposit cryptocurrency and receive staking tokens—such as Lido’s stETH or Jito’s JITOSOL—that represent the value of the deposited assets while allowing for continued liquidity. These tokens can be used across decentralized finance (DeFi) protocols, enabling users to engage in trading, lending, and borrowing without surrendering control of their assets [1]. Lido, for example, currently holds over $31 billion worth of Ethereum, making it one of the largest stakers in the DeFi ecosystem [1].

According to the SEC’s guidance, the minting, issuance, and redemption of staking receipt tokens are not considered offers or sales of securities unless the deposited crypto assets are part of an investment contract. This distinction is crucial for protocols that facilitate decentralized staking, as it confirms that they are not subject to the same regulatory requirements as traditional financial instruments [2]. The agency explicitly stated that participants in liquid staking activities do not need to register transactions under the Securities Act or seek exemptions from registration in connection with these activities [2].

The exemption is seen as a significant development for the potential approval of cryptocurrency-based exchange-traded funds (ETFs). Several ETF issuers, including Bitwise and VanEck, have sought the SEC’s approval to include liquid staking tokens in ETFs tied to Ethereum and Solana [2]. With the SEC’s confirmation that these tokens are not securities, the regulatory path for such ETFs is now more defined, potentially accelerating their approval [2].

Legal and industry experts have praised the decision, noting that liquid staking lacks the entrepreneurial or managerial elements that would otherwise qualify it as a securities transaction under current regulatory standards [2]. Rebecca Rettig, legal counsel for Jito Labs, emphasized that the guidance aligns with previous SEC interpretations of proof-of-stake protocols and removes a major obstacle for the inclusion of staking tokens in ETFs [2]. Analyst Nate Geraci also noted that this was the final regulatory hurdle for the inclusion of staking in spot Ethereum ETFs [2].

The timing of the SEC’s announcement is particularly noteworthy, as it comes just days before the agency is expected to make a decision on Bitcoin and Solana ETF applications [2]. Although the SEC has delayed its final ruling on those ETFs, the regulatory clarity provided for liquid staking may influence its broader approach to crypto-related investment products [2].

Source:

[1] Decrypt (https://decrypt.co/333616/sec-exempts-liquid-staking-ethereum-lido-solana-jito)

[2] Coingape (https://coingape.com/sec-clarifies-liquid-staking-isnt-a-security-amid-project-crypto-push/)