May 30, 2025

The U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a statement on May 29, 2025, clarifying the application of federal securities laws to specific crypto asset staking activities on proof-of-stake (PoS) networks.

The U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a statement on May 29, 2025, clarifying the application of federal securities laws to specific crypto asset staking activities on proof-of-stake (PoS) networks. This statement focuses on “Protocol Staking” involving “Covered Crypto Assets”—crypto assets integral to the programmatic functioning, consensus mechanisms, or technological security of public, permissionless PoS networks. The Division concludes that certain Protocol Staking Activities do not constitute the offer or sale of securities under the Securities Act of 1933 or the Securities Exchange Act of 1934, thus not requiring SEC registration or exemptions.

PoS networks use cryptography and economic mechanisms to verify transactions and secure the network without relying on trusted intermediaries. These networks operate via software protocols—computer code enforcing rules, technical requirements, and reward distributions. The consensus mechanism ensures agreement among distributed nodes (computers) on the network’s state, including ownership balances and transactions. In PoS, node operators stake Covered Crypto Assets to validate transactions and update the network’s state, earning rewards in the form of newly minted assets or transaction fees.

Staking involves locking up Covered Crypto Assets via smart contracts, which automate network transactions. These assets remain under the owner’s ownership and control, even when staked, and cannot be transferred during the lock-up period. Protocols select validators (node operators) based on random selection or criteria like the amount staked, and they include rules to deter harmful actions, such as “slashing” (forfeiting staked assets) for dishonest behavior like double-signing or validating invalid blocks. Rewards incentivize staking, enhancing network security by increasing the staked asset pool, which reduces the risk of hostile control.

The statement identifies three types of Protocol Staking Activities:

1. Self (Solo) Staking: A node operator stakes their own Covered Crypto Assets using their resources, maintaining full ownership and control. They validate transactions and earn rewards directly from the network.

2. Self-Custodial Staking with a Third Party: Owners delegate validation rights to a third-party node operator while retaining ownership and control of their assets and private keys. The node operator validates transactions, and rewards are shared, with the operator taking a fee.

3. Custodial Staking: A custodian holds the owner’s Covered Crypto Assets in a controlled digital wallet and stakes them on the owner’s behalf, either using its own node or a third-party node operator. The owner retains ownership, and the custodian does not use the assets for business purposes, lending, or speculation. Rewards are shared, with the custodian taking a fee.

Service providers may offer administrative services like slashing coverage (reimbursing losses from slashing), early unbonding (returning assets before the protocol’s unbonding period), alternate reward schedules, or aggregating assets to meet staking minimums. These services are ministerial and do not involve entrepreneurial efforts.

The Division evaluates whether Protocol Staking Activities involve securities using the “Howey test,” which defines an investment contract as an investment of money in a common enterprise with a reasonable expectation of profits from the entrepreneurial or managerial efforts of others. Covered Crypto Assets are not traditional financial instruments (e.g., stocks or bonds), so the analysis focuses on whether staking meets the Howey criteria.

– Self (Solo) Staking: Node operators stake their own assets and perform administrative tasks to validate transactions. Rewards result from their own efforts, not from third-party managerial actions, failing the “efforts of others” prong of Howey.

– Self-Custodial Staking with a Third Party: The node operator’s role remains administrative, and owners retain control. Rewards stem from the staking process, not entrepreneurial efforts, so this also does not meet Howey’s criteria.

– Custodial Staking: The custodian’s actions (holding assets, selecting node operators) are ministerial, not entrepreneurial. Owners retain ownership, and rewards are not tied to the custodian’s managerial efforts, excluding these arrangements from being securities.

– Ancillary Services: These are administrative tasks that support staking but do not involve managerial efforts, reinforcing that they do not satisfy Howey.

The Division concludes that Protocol Staking Activities—self-staking, self-custodial staking with third parties, custodial staking, and related ancillary services—do not involve securities under the Howey test. Participants in these activities do not need to register transactions with the SEC. However, this view is not definitive; specific cases may vary based on facts, and the statement does not cover other staking forms like liquid staking or restaking. For further inquiries, the Division directs stakeholders to its Office of Chief Counsel.

This statement reflects the Division’s views, not the SEC’s, and carries no legal force. It aims to provide clarity on PoS staking, balancing regulatory oversight with innovation in public, permissionless blockchain networks.

The post “SEC Issues Protocol Staking Activity Statement” first appeared on DigitalAsset.Law on May 30, 2025.