SEC Staff Issues Nonbinding Liquid Staking Guidance Amid Legal Uncertainty

The U.S. Securities and Exchange Commission (SEC) has issued nonbinding staff guidance on liquid staking that has stirred both hope and skepticism within the cryptocurrency industry. The guidance, which clarifies that liquid staking and related tokens are not considered securities and do not require registration, has been welcomed by some as a step toward regulatory clarity. However, industry participants and legal experts warn that the guidance leaves significant legal uncertainties unresolved and could face future challenges [2].

A key concern is that the guidance reflects the views of a single division within the SEC rather than the entire agency. The disclaimer explicitly states it is not a formal rule, regulation, or guidance, leaving room for future reinterpretation or legal contestation [1]. According to a source familiar with the process, such staff-level guidance is not uncommon and does not require a formal vote from the full Commission. Nonetheless, the absence of a unified regulatory stance creates a fragmented landscape for market participants.

Liquid staking, a mechanism that allows users to earn staking rewards while maintaining token liquidity, involves complex technical and operational models that vary significantly across platforms. While the SEC’s guidance provides some clarity regarding the non-security status of liquid staking activities, it does not address related areas such as restaking, crosschain staking, and the creation of more sophisticated financial products built on top of staking [2]. Sam Kim, Chief Legal Officer at Lido Labs, noted that these areas remain subject to regulatory ambiguity and will require further clarification.

Michael Hubbard of SOL Strategies added that while protocols adhering to a specific administrative model—such as issuing receipt tokens on a one-to-one basis without controlling staking timing or guarantees—may benefit from the guidance, any deviation could result in different regulatory treatment. This specificity limits the guidance’s applicability and does not account for the diversity of liquid staking models currently in use [1].

Taxation of staking rewards is another unresolved issue highlighted by the SEC staff’s statement. Evan Weiss, Chief Operating Officer at Alluvial, pointed out that the timing of taxation for these rewards remains unclear—whether it occurs at receipt or at disposition. This issue is currently under legal review and is a subject of ongoing advocacy at the congressional level. Additionally, the grantor trust tax rules, which dictate how assets are taxed upon death, remain a barrier to integrating staking within exchange-traded funds [1].

The debate has also drawn attention from former SEC officials. Amanda Fischer, former Chief of Staff to SEC Chair Gary Gensler, has faced criticism for comparing liquid staking to the rehypothecation practices linked to the 2008 financial crisis. Fischer argued that the lack of SEC oversight over liquid staking exposes the market to risks similar to those seen during the Lehman Brothers collapse [1]. However, industry experts have pushed back, emphasizing the decentralized and transparent nature of blockchain protocols, which differ fundamentally from traditional financial instruments.

Critics argue that Fischer’s analogy misrepresents liquid staking and fails to account for the control mechanisms inherent in decentralized systems. Matthew Sigel of VanEck highlighted a contradiction in her argument, noting that she simultaneously claims the SEC is “blessing crypto” while asserting there is no SEC oversight [1]. Others, including Austin Campbell of Zero Knowledge Consulting, have pointed out that leverage is not the central issue in decentralized staking, and that the focus should be on who controls the protocol and, by extension, the funds.

The controversy underscores the broader tension between traditional regulatory frameworks and the evolving nature of crypto markets. While the SEC staff has taken a step toward providing clarity, the guidance’s nonbinding nature and the lack of consensus among regulators mean that uncertainty remains. As the industry continues to grow, stakeholders will need to navigate a complex regulatory environment, with future legal and legislative developments likely to shape the trajectory of liquid staking.

Source:

[1] https://cryptopolicitan.com/former-gensler-chief-compares-liquid-staking-to-rehypothecation/

[2] https://clsbluesky.law.columbia.edu/