Former SEC Chief of Staff Compares Liquid Staking to Lehman's Collapse, Crypto Sector Pushes Back

A former chief of staff to U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler, Amanda Fischer, has drawn sharp criticism from the cryptocurrency sector following a controversial comparison of liquid staking mechanisms to the practices that contributed to Lehman Brothers’ 2008 collapse. Posting on X, Fischer argued that the SEC’s recent guidance, which excludes certain liquid staking activities from securities regulation, effectively “blesses” a form of rehypothecation—reusing assets for multiple transactions—that lacks the oversight provided by traditional financial regulators [1].

The SEC had issued a statement on Tuesday clarifying that it does not consider most liquid staking activities as securities offerings and, therefore, outside its jurisdiction [1]. Fischer, now with the financial reform group Better Markets, criticized the agency’s stance, suggesting it legitimizes a system in which crypto assets are repeatedly staked and restaked with minimal transparency or accountability. “The SEC’s latest crypto giveaway is to bless the same type of rehypothecation that cratered Lehman Brothers—only in crypto it’s worse because you can do it without any SEC or Fed oversight,” she wrote [1].

The response from the crypto community has been swift and largely defensive. Matthew Sigel, head of digital assets research at VanEck, questioned the consistency of Fischer’s argument, noting contradictions in her statements about SEC oversight [1]. Jason Gottlieb, a New York-based lawyer, described Fischer’s remarks as neither “technically nor legally” correct, arguing that blockchain-based rehypothecation could have mitigated the issues seen in 2008 [1]. Mert Mumtaz, CEO of Helius Labs, accused Fischer of either misunderstanding the technology or being intentionally obtuse [1].

The debate underscores the growing tension between regulatory caution and industry innovation. While Fischer’s concerns about the risks of unregulated asset reuse are not without merit, industry experts argue that her analogy to Lehman Brothers oversimplifies the mechanics and governance of liquid staking protocols [1]. Kurt Watkins, a blockchain attorney, highlighted that Fischer’s critique focuses on non-leveraged, passive staking structures where receipt tokens represent claims on the original asset, rather than leveraged or opaque financial instruments [1]. Similarly, Austin Campbell, a crypto compliance advisor, noted that policymakers often apply outdated centralized frameworks to decentralized systems, leading to misinterpretations [1].

Despite the backlash, the SEC remains divided. Commissioner Caroline Crenshaw expressed skepticism about the guidance, stating it relies on assumptions and provides little regulatory clarity. Meanwhile, Commissioner Hester M. Peirce supported the decision, comparing liquid staking to a mechanism that enhances the liquidity of fungible goods [1].

The controversy comes as liquid staking protocols continue to gain traction. According to DeFiLlama, the total value locked (TVL) in liquid staking protocols now stands at $66.94 billion, up 14.5% year-to-date. Lido Finance leads the space with $31.88 billion in TVL, while Binance’s staked ETH has seen a near-90% increase in TVL to $11.4 billion [1].

Fischer’s remarks, while controversial, highlight the complexity of applying traditional financial frameworks to a rapidly evolving sector. As the debate continues, the crypto industry and regulators face a shared challenge: how to ensure innovation is not stifled while minimizing systemic risk in a decentralized ecosystem [1].

Source: [1] Ex-SEC Chief of Staff Compares Liquid Staking to Lehman, Crypto Industry Fires Back (https://decrypt.co/333696/ex-sec-chief-of-staff-compares-liquid-staking-to-lehman)