SEC Clarifies Crypto Staking Not Subject to Securities Laws

The U.S. Securities and Exchange Commission (SEC) has issued new guidance clarifying that most common forms of crypto staking do not fall under securities laws. This development marks a significant shift in the regulatory landscape for cryptocurrency, particularly for those involved in staking activities. The SEC’s Division of Corporation Finance confirmed that participants in staking activities, including self-staking, delegated staking, custodial, and non-custodial forms, are not required to register these actions with the financial regulator. This clarification is expected to alleviate regulatory uncertainty and encourage broader participation in staking activities.

The SEC’s statement emphasized that providing features such as early withdrawal options, bundled rewards, slashing protection, or asset aggregation to meet minimum staking thresholds does not automatically classify these arrangements as securities offerings. The agency underscored that such enhancements do not alter the fundamental nature of staking under federal law. Staking is a crucial component of blockchain networks that operate on a proof-of-stake consensus mechanism, where participants lock up their tokens to validate network transactions and earn rewards. This process has historically been contentious, with the SEC under former Chair Gary Gensler pursuing legal actions against firms involved in staking.

SEC Commissioner Hester Peirce, known for her advocacy of clearer crypto regulation, supported the decision. She described staking as an essential part of proof-of-stake systems, where users contribute to network security by voluntarily locking up their tokens. Peirce highlighted that regulatory uncertainty has deterred American users from engaging with these networks, despite their importance to blockchain infrastructure. She stated that the Division’s statement is applicable to persons who self-stake certain covered crypto assets on a proof-of-stake or delegated proof-of-stake network.

However, not all commissioners agreed with the staff’s interpretation. Commissioner Caroline Crenshaw criticized the analysis, arguing that it overlooked the Howey Test, a key legal standard used to identify securities. Crenshaw warned that the SEC’s approach to crypto regulation is based on anticipation of future changes while ignoring existing law. This dissenting view underscores the ongoing debate within the SEC regarding the appropriate regulatory framework for cryptocurrencies.

The SEC’s position on staking could have significant implications for spot Ethereum exchange-traded funds (ETFs), which are currently barred from staking their assets. This guidance removes a major regulatory obstacle for funds seeking to stake Ethereum or other proof-of-stake assets. However, further clarity is still needed from the Internal Revenue Service (IRS), particularly around how staking rewards will be treated within the grantor trust structures typically used by ETFs. If staking integration into these ETFs proceeds smoothly, it could unlock a new revenue stream for investors and enhance the appeal of crypto investment products within regulated markets.