Crypto staking services not deemed as securities according to SEC
The Securities and Exchange Commission (SEC) has provided guidance clarifying that protocol staking on proof-of-stake (PoS) networks, when it involves direct participation in the network’s consensus process, does not meet the criteria for investment contracts and thus is not considered a securities offering.
This decision is a significant shift from earlier views and enables institutional investors to engage in compliant staking without breaching securities laws. The guidance, which was published in 2025, provides regulatory clarity for major platforms like Coinbase, Kraken, and Lido, collectively handling billions in staked assets.
The SEC's Howey Test and Staking Services
The SEC determines whether staking services involve securities under the Howey test by examining if the staking activity constitutes an "investment contract." Specifically, the Howey test considers if there is:
- An investment of money
- In a common enterprise
- With an expectation of profit
- Derived from the efforts of others
The SEC's recent guidance clarifies that staking services on PoS networks, where users lock their tokens to secure the network and earn a reward in return, do not meet these criteria. This excludes scenarios where staking rewards are earned through genuine protocol activities rather than through speculative promises of profits from others' efforts.
The SEC's Decision and its Implications
The SEC's interpretation hinges on whether the staking activity is an administrative function directly tied to the network’s operation (non-security) or an investment expecting profits from others’ efforts (security). Staking services that allow direct participation in blockchain consensus without passive reliance on others’ efforts are generally not deemed to involve securities under the Howey test according to the SEC’s guidance.
However, the SEC continues to scrutinize platforms or schemes that resemble lending or speculative arrangements, where profits depend primarily on the efforts of a third party, which could still qualify as securities under the Howey framework.
Controversy Surrounding the SEC's Interpretation
Democrat Commissioner Caroline Crenshaw has expressed significant pushback against the SEC's interpretation of staking services. She believes the interpretation conflicts with the law and inadequately justifies the legal interpretation. Despite this, the SEC's staff note provides a clear path for compliant staking activities, removing a regulatory cloud that has limited institutional adoption of staking services.
The CLARITY Act and Staking Services
The newly proposed digital asset legislation, the CLARITY Act, doesn't explicitly cover staking but includes explicit regulatory relief for blockchain-linked tokens. The Act provides statutory protections for digital commodities that meet specific criteria, making it less vulnerable to future political shifts.
In conclusion, the SEC's guidance on staking services has provided much-needed clarity for the digital asset industry. Staking service providers can now operate with greater confidence, knowing that their activities are not likely to be considered securities offerings under the Howey test, as long as they allow direct participation in blockchain consensus without passive reliance on others’ efforts.
[1] SEC Staff Statement on Framework for 'Investment Contract' Analysis of Digital Assets Under Sections 5 and 21(a) of the Securities Act of 1933 (March 10, 2025) [2] SEC Staff No-Action Letter to Coinbase (March 10, 2025) [3] SEC Staff No-Action Letter to Kraken (March 10, 2025) [4] SEC Staff No-Action Letter to Lido (March 10, 2025)
- The SEC's guidance on staking services, published in 2025, offers valuable insights into the legality of such activities within the blockchain industry, providing regulatory clarity for major platforms like Coinbase, Kraken, and Lido.
- The SEC's interpretation of staking services on PoS networks as non-securities offerings, based on the Howey test, has significant implications for the finance sector, enabling institutional investors to engage in compliant staking activities without breaching securities laws.
- The SEC's guidance on staking services signals a shift in the industry's understanding of assets tied to blockchain technology, offering a clear path for compliant staking activities that allow direct participation in blockchain consensus without passive reliance on others’ efforts.
- The CLARITY Act, proposed digital asset legislation, while not explicitly covering staking services, includes provisions for blockchain-linked tokens, providing a framework that could offer statutory protections and reduce the potential impact of future political shifts on the digital asset industry.
