SEC Clarifies Crypto Staking Rules Exempting 75% of Activities

The Securities and Exchange Commission (SEC) has issued new guidance on crypto staking, clarifying that most common staking activities are not subject to federal securities regulations, provided certain conditions are met. The guidance, released on Thursday, specifies that protocol staking, which involves locking crypto assets intrinsically linked to the functioning of a public, permissionless network, does not constitute the offer and sale of securities as defined under the Securities Act of 1933 or the Securities Exchange Act of 1934.

This clarification comes after a period of uncertainty during the tenure of former SEC Chair Gary Gensler, who had previously labeled most crypto assets as securities. The new guidance aims to address the concerns raised by major crypto firms, which had urged the agency to provide clear rules on staking, defining it as a technical function necessary to secure proof-of-stake networks rather than a securities offering or investment scheme.

The SEC's guidance covers three types of staking: self-staking, where participants stake their own assets; self-custodial staking, where owners delegate staking to node operators but retain ownership; and custodial staking, where custodians stake assets for customers. However, practices like liquid staking and restaking, where providers have control over staking decisions, are not covered and may still be subject to securities laws. The guidance emphasizes the importance of retaining ownership of assets, as stated by the SEC's corporate finance division.

Despite the clarity provided by the new guidance, SEC Commissioner Caroline Crenshaw criticized the agency's approach, describing it as a "fake it till we make it" outcome. Crenshaw argued that the new guidance contradicts applicable laws and court precedents, citing cases involving U.S. crypto exchanges Kraken and Coinbase, as well as a separate dismissal for Binance. She expressed concern that the agency's approach continues to sow uncertainty around what the law is and what parts of it the Commission is willing to enforce.

In summary, the SEC's new guidance on crypto staking provides much-needed clarity for the industry, excluding self-staking and custodial staking from securities regulations. However, the dissenting opinion from Commissioner Crenshaw highlights the ongoing debate within the agency regarding the regulatory treatment of crypto assets. The guidance, while non-binding, reflects the views of SEC staff and aims to promote a clearer understanding of the legal framework surrounding crypto staking activities.