SEC staff said certain liquid staking activities do not constitute the sale of securities in a new clarification.
The statement clarifies that “Staking Receipt Tokens” do not need to be registered under securities laws.
SEC Chair Paul Atkins called the move a “significant step forward in clarifying the staff’s view” on crypto activities.
In a significant and widely welcomed move, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance has issued a statement clarifying its view that certain liquid staking activities associated with protocol staking do not constitute the sale of securities.
This clarification, released on August 5, provides a measure of long-sought regulatory clarity for a key and rapidly growing sector of the cryptocurrency ecosystem.
The SEC Division’s statement specified that parties involved in the minting, offering, and redeeming of certain liquid staking tokens are not required to register with the federal regulator under the securities laws.
In essence, the offer and sale of these “Staking Receipt Tokens,” as the statement referred to them, are not considered securities offerings unless the underlying deposited crypto assets are themselves part of or subject to an investment contract.
This is a pivotal clarification for the crypto industry. In the world of crypto, staking is the process of locking up crypto assets, such as Ethereum (ETH), to help secure a proof-of-stake (PoS) blockchain network in exchange for rewards. Liquid staking is a popular variant of this process.
When users stake their crypto assets through a liquid staking protocol, they receive a tokenized version of their staked assets, such as sETH (staked ETH).
The key feature of these “liquid staking tokens” is that, unlike traditionally staked assets, they are not locked up; they remain liquid and can be traded, lent, or used in other decentralized finance (DeFi) applications while the original assets continue to earn staking rewards.
SEC Chairman Paul Atkins framed the announcement as part of a broader commitment to providing clear guidance on emerging technologies.
“Under my leadership, the SEC is committed to providing clear guidance on the application of the federal securities laws to emerging technologies and financial activities,” Atkins stated.
Today’s staff statement on liquid staking is a significant step forward in clarifying the staff’s view about crypto asset activities that do not fall within the SEC’s jurisdiction.
SEC Commissioner Hester Peirce, a long-time advocate for regulatory clarity in the crypto space, also welcomed the statement.
She explained that it clarifies that liquid staking activities in connection with protocol staking do not constitute the selling of securities.
“Instead, it is a variant on the longstanding practice of depositing goods with an agent who performs a ministerial function in exchange for a receipt that evidences ownership of the goods,” she added, providing a useful analogy to traditional commercial practices.
Industry leaders celebrate, eyes turn to Ethereum ETFs
The crypto industry’s reaction to the SEC’s clarification has been overwhelmingly positive. Alexander Grieve, VP of Government Affairs at the crypto investment firm Paradigm, celebrated the move.
Miles Jennings, Head of Policy & General Counsel at the prominent crypto-focused venture capital firm Andreessen Horowitz (a16z), went a step further, calling it a “huge win.”
This development is particularly timely and relevant for the issuers of spot Ether ETFs. These firms, such as Bitwise, have been actively trying to get the SEC’s approval to allow staking for their Ethereum ETFs, a feature that would enable the funds to generate additional yield for their investors.
The SEC’s new clarification on liquid staking is seen by many as a crucial step towards making that a reality.
Nate Geraci, President of NovaDius Wealth Management, expressed his optimism, suggesting this could be the final piece of the puzzle.
“Think last hurdle in order for SEC to approve staking in spot eth ETFs,” he said. Geraci further explained how liquid staking tokens could be a key part of the solution: “Liquid staking tokens will be used to help manage liquidity w/in spot eth ETFs, something that was a concern for SEC.”
By providing a liquid, tradable representation of the staked assets, these tokens could help ETF issuers manage the daily inflows and outflows of their funds more efficiently, addressing one of the SEC’s previous operational concerns.
