SEC says protocol staking on PoS networks is not a securities

Industry players, including BlackRock, have recently met with the SEC’s Crypto Task Force to discuss staking capabilities and options trading on crypto ETFs.

Key Takeaways

• The SEC clarified that protocol staking on PoS networks is not considered a securities offering.
• Staking activities and related services are classified as administrative or ministerial rather than entrepreneurial.

The US SEC has clarified that certain protocol staking activities on proof-of-stake (PoS) networks do not constitute securities offerings under federal law.

In a statement issued by the SEC’s Division of Corporation Finance on May 29, the Division said that participants in protocol staking activities do not need to register transactions with the Commission under the Securities Act or qualify for exemptions from registration requirements.

This guidance covers three types of staking activities: self (or solo) staking, where node operators stake their own crypto assets, self-custodial staking directly with third parties, and custodial arrangements where a custodian stakes on behalf of asset owners.

The Division determined that staking rewards are “payments to the Node Operator in exchange for the services it provides to the network rather than profits derived from the entrepreneurial or managerial efforts of others.”

For custodial arrangements, the SEC noted that “the custodian does not decide whether, when, or how much of an owner’s Covered Crypto Assets to stake. The custodian simply acts as an agent in connection with staking the deposited Covered Crypto Assets on behalf of the owner.”

The guidance also addresses ancillary staking services like slashing coverage, early unbonding, alternate rewards payment schedules, and asset aggregation, determining these to be “administrative or ministerial in nature” rather than entrepreneurial or managerial activities.

The SEC’s Crypto Task Force has been actively engaging with the industry through a series of roundtable discussions focused on various key regulatory issues in the crypto sector, including staking incorporation.

Earlier this month, BlackRock met with the task force to discuss regulatory issues, staking capabilities, and options trading on crypto ETFs.

A group of major crypto firms, led by the Crypto Council for Innovation and the Proof of Stake Alliance (POSA), recently urged the SEC to clarify that staking is not an investment activity and shouldn’t be regulated as a security.

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