The U.S. Securities and Exchange Commission’s Division of Corporation Finance issued guidance clarifying that certain staking activities on proof-of-stake (PoS) networks do not fall under securities laws.
The Division stated on May 29 that participants engaging in specific protocol staking actions are exempt from registration requirements under the Securities Act. This announcement covers various staking models, including self-staking by node operators, self-custodial staking through third parties, and custodial staking where custodians act on behalf of asset owners.
Staking Rewards Considered Compensation for Network Services
The Division emphasized that staking rewards represent compensation paid to node operators for services provided to the network. These rewards do not equate to profits earned from entrepreneurial efforts or management roles. Consequently, such staking activities fall outside the scope of securities regulation.
Furthermore, the SEC clarified the role of custodians in these arrangements, noting that custodians act solely as agents. They do not influence decisions about when or how users’ funds are locked, reinforcing the view that custodial staking does not trigger securities law obligations.
Ancillary Services Classified as Administrative, Not Entrepreneurial
Beyond staking alone, the SEC also discussed associated services typically provided with staking, referring to them as administrative or ministerial tasks. These supplementary services involve protections against slashing, options for early withdrawal, varied reward timing, and pooling assets to satisfy minimum staking requirements.
The Division stated that these features do not alter the regulatory status of staking activities, as they do not constitute entrepreneurial efforts. This clarification follows a previous SEC position on proof-of-work mining, where certain mining activities were also deemed outside the purview of securities transactions.
Commissioner Crenshaw Disagrees with Guidance
Meanwhile, SEC Commissioner Caroline Crenshaw issued a dissenting statement. She criticized the guidance, arguing that exempting crypto staking activities from securities regulation conflicts with existing laws and court precedents.
Crenshaw referenced cases involving U.S. exchanges Kraken and Coinbase, as well as a dismissal related to Binance on the same day. According to her, the SEC’s approach generates uncertainty by blurring which laws the Commission intends to enforce in the crypto sector.
SEC’s Shifting Approach to Proof-of-Stake Assets
Notably, these developments reveal a significant shift in the SEC’s stance on crypto, particularly regarding Proof-of-Stake (PoS) assets, under the leadership of Chair Paul Atkins.
Historically, the SEC had taken a hardline position against centralized staking providers. A prominent example occurred in 2023 when the SEC’s scrutiny of Kraken’s staking services prompted many companies to cease operations within the United States due to the resulting legal uncertainties. The case against Kraken, along with ConsenSys and Cumberland, was, however, dismissed.
Notably, the former SEC Chair, Gary Gensler, adopted a broad and stringent interpretation of crypto assets. Gensler argued that a substantial majority of cryptocurrencies, especially those based on Proof-of-Stake mechanisms, should be classified as securities. His rationale centered on the Howey Test.
However, the recent approach marks a notable departure from previous regulatory actions.
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