SEC Commissioner Crenshaw Criticizes Liquid Staking Guidance as Flawed

The U.S. Securities and Exchange Commission (SEC) remains divided over its approach to regulating cryptocurrency, as Commissioner Caroline Crenshaw issued a strong rebuke of the agency’s recent guidance on liquid staking. The guidance, published by the Division of Corporation Finance, asserts that liquid staking—where users can earn staking rewards while maintaining the ability to trade or transfer their tokens—does not constitute a securities offering [1]. This interpretation suggests that platforms offering such services may not need to register with the SEC under current securities laws, potentially easing regulatory pressure and fostering innovation [1].

Crenshaw, however, labeled the guidance as fundamentally flawed. She criticized the staff for building a “wobbly wall of assumptions” that fails to reflect the real-world complexity and diversity of liquid staking mechanisms across different blockchain ecosystems [1]. In her view, the guidance lacks a solid legal foundation and should not be treated as an official SEC position. She emphasized that the document is based on speculative premises and does not provide the clarity or reliability necessary for companies seeking to remain compliant [1].

Crenshaw warned that entities offering liquid staking products that deviate from the assumptions outlined in the guidance should proceed with caution. She coined the phrase “caveat liquid staker” to underscore the risks involved, cautioning that the guidance cannot be interpreted as a legal shield against enforcement actions [1]. Her comments come amid the SEC’s broader crackdown on crypto-related securities violations, which adds to the uncertainty for market participants.

Supporters of the guidance, including SEC Commissioner Hester Peirce, argued that liquid staking shares similarities with traditional financial practices, such as receiving receipts for goods left with an agent [1]. Peirce’s endorsement reflects a pro-innovation stance that aligns with the agency’s Project Crypto initiative, which has promoted a lighter-touch regulatory approach in certain areas of the crypto industry [1]. The guidance itself appears to follow this line of thinking, offering a framework that could facilitate further development in the liquid staking sector without immediate regulatory hurdles [1].

Nonetheless, Crenshaw’s dissent highlights the deepening divide within the SEC over how best to regulate the rapidly evolving crypto landscape. While some agency members advocate for adapting existing securities laws to accommodate technological advances, others, like Crenshaw, argue for a more cautious and evidence-based strategy that prioritizes investor protection [1]. Her critique has raised concerns among legal experts, who warn that any deviation from the outlined assumptions in the guidance could expose platforms to enforcement risks [1].

The crypto industry has responded with cautious optimism, seeing the guidance as a potential step toward regulatory clarity. Some stakeholders view it as a signal that the SEC may be open to accommodating innovation, at least in certain areas [1]. However, the lack of consensus within the SEC means that long-term legal certainty remains elusive. As the debate continues, companies in the liquid staking space must navigate a regulatory environment that remains fluid and unpredictable [1].

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[1] https://www.cryptopolitan.com/secs-crenshaw-blasts-liquid-staking-guidance/