SEC Grants Regulatory Clarity to Liquid Staking Protocols

The U.S. Securities and Exchange Commission has provided regulatory clarity for the liquid staking industry, confirming that major protocols such as Ethereum’s Lido and Solana’s Jito are not subject to securities laws. The guidance, issued by SEC staff in early 2025, concludes that liquid staking receipt tokens—such as stETH from Lido and JITOSOL from Jito—do not qualify as investment contracts under the Howey Test, thus removing the need for registration under the Securities Act of 1933 or the Securities Exchange Act of 1934 [1]. Lido, which currently holds over $31 billion in assets, stands to benefit significantly from this exemption, reinforcing the importance of the guidance for the broader DeFi ecosystem [2].

The SEC’s decision clarifies that liquid staking receipt tokens serve as proof of ownership and do not meet the criteria of investment contracts. As a result, protocols issuing these tokens are no longer subject to enforcement actions under current rules, and secondary market participants can trade them freely without regulatory oversight [3]. This shift reduces the compliance burden for platforms and creates a more favorable environment for innovation and institutional participation [4].

Industry experts view this development as a crucial step toward the approval of spot Ethereum exchange-traded funds. Nate Geraci, an ETF commentator, noted that the guidance removes one of the final barriers to staking inclusion in such funds, with liquid staking tokens potentially aiding in liquidity management for these investment vehicles [5]. The move is also expected to boost adoption of liquid staking protocols, which offer a more energy-efficient alternative to traditional proof-of-work staking models and could see a significant rise in total value locked as a result [7].

While the SEC’s staff-level guidance has been widely welcomed, it has faced some internal criticism. SEC Commissioner Caroline Crenshaw expressed concerns that the directive lacks clarity and may not align with industry practices. She warned that the decision could set inconsistent regulatory precedents and fail to provide sufficient investor protection [6]. Nevertheless, the agency’s broader message has been interpreted as a positive step, signaling a more supportive stance toward crypto innovation and reducing the risk of enforcement actions that had previously hindered sector growth.

The guidance marks a rare instance of the SEC providing clarity rather than imposing new restrictions, potentially signaling a shift in the regulatory approach to decentralized finance. With major platforms like Lido and Aave managing billions in assets, the sector now has greater certainty to expand and attract institutional capital [2].

Sources: [1] Yahoo

[2] 99Bitcoins

[3] COIN360

[4] ChainCatcher

[5] Nate Geraci, X (Twitter)

[6] Crypto Briefing

[7] FXStreet