SEC Clarifies Liquid Staking Not a Security Under U.S. Law

The U.S. Securities and Exchange Commission (SEC) has provided long-awaited clarity on the legal status of liquid staking, a key mechanism in the decentralized finance (DeFi) ecosystem. On August 5, 2025, the SEC’s Division of Corporation Finance issued an official opinion confirming that liquid staking activities do not constitute securities transactions under the U.S. Securities Act or Exchange Act [1]. This includes the process of depositing crypto assets with a protocol or third-party service, receiving 1:1 staking receipt tokens (LSTs), and earning rewards or redeeming assets through the staking provider [1].

The agency emphasized that users retain full ownership of their staked crypto and that rewards are governed by the protocol’s algorithmic rules, not by the active management of a third party. This aligns with the SEC’s Howey Test criteria, which assess whether an arrangement constitutes an investment contract [1]. As a result, LSTs are not considered securities provided they meet specified structural conditions, such as ensuring that providers do not set returns or exercise discretion over staking amounts [1].

The decision carries significant implications for Ethereum and Solana staking protocols, as well as for crypto exchange-traded fund (ETF) issuers. Several companies, including Bitwise, VanEck, and Franklin Templeton, have expressed interest in incorporating LSTs such as stETH, rETH, and jitoSOL into their portfolios to enhance liquidity and yield generation [1]. Industry experts suggest that this regulatory clarity removes a major compliance hurdle and moves these ETFs closer to approval, particularly if they can demonstrate that LSTs serve as liquidity tools rather than investment vehicles [1].

The opinion also clarifies that while protocol-based and third-party liquid staking providers are generally compliant, certain activities could still fall under securities regulations. These include offering fixed returns, engaging in active management, or adding complex financial structures [1]. This distinction provides a clear boundary for firms seeking to innovate within the legal framework without triggering regulatory scrutiny.

Industry stakeholders have reacted positively to the SEC’s stance. Rebecca Rettig, Chief Legal Officer of Jito Labs, noted that the decision reinforces the view that LSTs are proof of ownership rather than speculative assets [1]. Similarly, Marinade Finance, a leading Solana staking protocol, praised the SEC’s position, highlighting that it enables more retail users to participate safely in staking yields [1].

As the SEC continues its broader "Project Crypto" initiative, the liquid staking clarification signals a shift from enforcement-focused actions to a more structured regulatory approach. This could pave the way for greater integration between DeFi and traditional finance (TradFi), broader adoption of staking strategies in ETFs, and increased participation in proof-of-stake blockchain economies [1]. With liquid staking now defined as outside the scope of securities law—under specific parameters—the market has been granted not only regulatory breathing room but also a major step toward mainstream legitimacy.

Source: [1] SEC Drops Clarity Bomb: Liquid Staking Not a Security, Says Division (https://www.cryptoninjas.net/news/sec-drops-clarity-bomb-liquid-staking-not-a-security-says-division/)