SEC Clarifies Liquid Staking Not Securities Under Current Laws

The U.S. Securities and Exchange Commission (SEC) has issued a statement clarifying that specific crypto liquid staking activities do not constitute securities offerings under current federal laws. This formal guidance, released by the Division of Corporation Finance, provides regulatory clarity for participants in the crypto market and differentiates crypto staking mechanisms from traditional financial instruments. The statement addresses a type of staking known as “liquid staking,” where users deposit crypto assets with third-party providers and receive “Staking Receipt Tokens” in return. These tokens represent ownership of the staked assets and associated rewards while allowing for secondary uses like collateralization or participation in DeFi protocols [1].

The SEC’s analysis centers on whether liquid staking arrangements meet the criteria of an investment contract under the Howey Test. According to the statement, liquid staking providers do not engage in entrepreneurial or managerial efforts that would trigger securities law obligations. Instead, their role is limited to administrative functions such as staking, reward distribution, and the minting or redemption of receipt tokens [1]. The SEC emphasizes that the value of these tokens is tied to the underlying crypto assets, not the performance or management of a third party. This interpretation means that staking receipt tokens are not investment contracts and, therefore, not subject to securities regulations under the specified conditions.

The guidance applies to both protocol-based and third-party service providers, reinforcing that the primary function of liquid staking is to enable liquidity without transferring ownership or control of assets [1]. However, the SEC warns that the current clarity is conditional and does not apply to liquid staking arrangements that introduce additional investment-like features or extend beyond administrative roles. Such cases may still fall under securities laws, depending on their structure and operations [1].

For investors, this ruling simplifies the regulatory landscape for engaging in liquid staking activities. It allows for greater participation and innovation in the space without the burden of securities compliance, which could encourage the development of products like liquid staking ETFs and institutional-grade offerings. SEC Chairperson Paul Atkins has highlighted the importance of this clarity in fostering market growth and reducing regulatory uncertainty [1]. Analysts have suggested that this development may lead to increased market activity and greater confidence among participants in the liquid staking ecosystem [2].

The SEC also underscores the importance of transparency in user agreements, noting that such documents typically affirm that depositors retain ownership of their assets. While the statement does not prevent future regulatory changes, it offers a benchmark for industry participants seeking to operate within existing interpretations. The guidance invites further inquiries through the Division’s Office of Chief Counsel, maintaining its non-binding nature while providing valuable interpretive guidance for market actors [1].

Source: [1] Statement on Certain Liquid Staking Activities (https://www.sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525)

[2] Liquid Staking Tokens Aren't Securities, SEC Says. What ... (https://www.investopedia.com/liquid-staking-tokens-are-not-securities-sec-says-what-that-means-for-crypto-investors-11785409)