SEC’s Crypto Staking Update: What You Didn’t Know (But Should!) 😏

by

//x.com/alexforehand0″>Alex Forehand

and the ever-so-astute

Michael Handelsman

for the esteemed

Kelman.Law

.

What the Statement Covers

In this grand statement, we find an expansion on the concept of Protocol Staking, elucidating the treatment of liquid staking. Here, depositors are bestowed with a one-for-one Staking Receipt Token (SRT) in exchange for their Covered Crypto Assets, all thanks to a third-party service provider or a protocol-based arrangement. How quaint! 🎩

The staff, in their infinite wisdom, posits that if one adheres to strict factual conditions, these liquid staking activities-defined with the precision of a surgeon-do not constitute the offer or sale of securities under Section 2(a)(1) of the Securities Act or Section 3(a)(10) of the Exchange Act. How delightfully convoluted! 🧐

Key assumptions include that providers merely perform administrative or ministerial roles, abstaining from making discretionary staking decisions-such as whether, when, or how much to stake-and, of course, they do not guarantee yield. Thus, they artfully sidestep the key prongs of “efforts of others” and “expectation of profits” under the illustrious Howey test. Bravo! 👏

How This Relates to the May Statement

This August statement, like a fine wine, builds upon the earlier Protocol Staking Statement, which so generously addressed solo staking, custodial staking, and delegated staking. For those who wish to revisit our discussion of the SEC’s Statement on Protocol Staking, you may do so here. 🍷

The new guidance confirms that specific liquid staking models, when designed to mirror those same fact patterns, also fall within the same narrow carve-out-but only if they conform precisely to the staff’s assumptions. A delightful game of regulatory hopscotch! 🎉

What Is and Is Not Covered

Covered:

  • SRTs issued to depositors as receipts (not investment contracts) for staked tokens;
  • Custodial or protocol-based liquid staking where the provider simply holds tokens, stakes them, issues/redeems SRTs, and collects fees-without exercising discretion or providing guarantees. How refreshing! 💧

Not Covered:

  • Arrangements where providers exercise discretion over when, whether, or how much to stake;
  • Models where SRTs are used to generate further yield consistent with provider discretion;
  • Features deviating from the defined assumptions (e.g. reward guarantees, centralized selection of node operators). Oh dear! 😱

If those assumptions are not strictly met, the SEC staff’s safe-harbor view no longer applies. A veritable minefield of legalese! ⚠️

How the SEC Applies Howey in the Liquid Staking Context

The staff treats SRTs as receipts-akin to warehouse receipts-evidencing ownership of the staked asset, not securities, for the underlying Covered Crypto Asset is not a security. How utterly fascinating! 🏛️

The test centers on whether there are entrepreneurial or managerial efforts of others generating yield. According to the statement, Liquid Staking Providers act as agents, not investment managers-they hold assets, stake per protocol, issue/redeem receipt tokens, and take fees-but do not direct staking decisions or guarantee returns, thus failing to meet the “efforts of others” threshold. A splendidly intricate dance! 💃

Practical Implications & Caveats

Like the earlier Protocol Staking Statement, the liquid staking guidance is non-binding, reflects the views of Corp Fin staff only, and is highly fact-specific-with detailed assumptions that must be met exactly. A delightful puzzle for the legal mind! 🧩

As Commissioner Crenshaw wisely warned, deviation from any of these assumptions takes the activity “outside the scope of this statement.” A cautionary tale indeed! 📖

Neither statement-May 29 and August 5-provides safe harbor for stablecoin “staking,” rehypothecation, or governance-based DAO staking models; those continue to require separate legal analysis. How utterly exhausting! 😩

//kelman.law/contact/”>here

to discuss your staking model, token issuance, or governance structure in light of these latest SEC statements. We await your inquiries with bated breath! 😄

This article originally appeared at Kelman.law.

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2025-08-10 09:14