SEC Statement on Staking Practices
On May 29, 2025, the U.S. Securities and Exchange Commission (SEC) released a statement outlining its regulatory stance on specific staking practices on Proof-of-Stake (PoS) networks. This announcement does not constitute formal legislation or a binding regulatory framework, but it effectively signals the SEC’s position and may significantly influence future regulatory policies concerning crypto staking activities.
Understanding Protocol Staking
In its statement, the SEC elaborates on what it refers to as “Protocol Staking”. In public blockchains operating on the PoS consensus mechanism, users can stake their cryptocurrency assets to secure network operations and consensus while earning rewards. The SEC classifies the assets involved in this staking process as “covered crypto assets”, which are directly linked to the network’s operational capabilities, such as block verification and stability. Examples include Ethereum’s ETH, Polkadot’s DOT, and Cosmos’s ATOM.
Staking enables individuals, called validators, to earn income from newly created tokens and network transaction fees, promoting decentralization and enhancing network security by making it difficult for malicious actors to take control.
Categories of Staking
The SEC categorizes staking into three forms:
- Self or Solo Staking: Users operate their own nodes and maintain full control over their assets, thus receiving total rewards.
- Self-Custodial Staking with Third-Party Assistance: Users manage their assets and private keys while entrusting verification tasks to a third party, sharing a portion of the rewards.
- Custodial Staking: Users deposit assets with a custodian who stakes them on their behalf, with earnings distributed according to an agreement. Custodians are prohibited from utilizing staked assets for lending or speculative purposes.
Staking and Securities Classification
A significant focus of the SEC’s statement is whether specific staking activities should be classified as securities under U.S. law. Using the Howey test, which assesses investment contracts, the SEC indicates that:
- If a user retains control over their staked assets and operates their own nodes, the activity should not be classified as a securities transaction.
- Delegating crypto assets to centralized entities without engaging in node operations may trigger the Howey Test, potentially classifying their staking as a security.
Implications and Recommendations
The implications of this statement are broad:
- Projects based on PoS may face scrutiny as trends toward centralized staking could lead to classification as security transactions.
- Centralized exchanges offering staking services (e.g., Coinbase and Binance) may experience increased regulatory scrutiny, especially if their products exhibit characteristics identified by the Howey Test.
- Decentralized finance (DeFi) protocols may contend with regulatory discussions if there is ambiguity regarding their governance and operation.
Everyday users are encouraged by the SEC to engage in self-staking or utilize non-custodial methods, emphasizing the importance of user control over their private keys. Users should also be cautious with staking services promising high returns, as these risks—from the platform’s operations and potential regulatory changes—can be significant. Transparency in staking processes and risk mitigation is crucial for users to assess the reliability of services, ensuring they avoid manipulative practices.
Conclusion
The SEC is delineating which staking activities may constitute securities trades, indicating that any involvement of user asset custody or reliance on third-party operations could fall under its regulatory purview. As the line between decentralized tools and regulated financial services becomes clearer, both platforms and users must navigate compliance carefully, prioritizing staking methods that preserve user autonomy and transparently communicate associated risks.
