U.S. Securities and Exchange Commission Clarifies Regulations on Crypto Staking
Crypto staking exempt from securities regulations, according to SEC statement.
In a significant move for the cryptocurrency industry, the Securities and Exchange Commission (SEC) has issued new guidance on crypto staking, allowing most common staking activities to operate outside the purview of federal securities regulations.
Released on Thursday, the guidance establishes that protocol staking, which involves locking crypto assets for functions within public, permissionless networks, is not subject to securities laws, provided certain conditions are met. These assets can be used to participate in and earn rewards from the network's consensus mechanism.
The SEC's Division of Corporation Finance emphasized that protocol staking activities do not involve the offer and sale of securities, as defined under the Securities Act of 1933, and this non-security status applies to both the act and the definition of "Protocol Staking Activities" under the Securities Exchange Act of 1934.
The new guidance effectively puts an end to the regulatory uncertainty that arose during the Biden administration, when former SEC Chair Gary Gensler labeled most cryptocurrencies as securities. The decision marks a more transparent and open approach to crypto regulation, a characteristic praised by Michael Bacina, an executive in residence at the global policy think tank Global Digital Finance.
Bacina stated that the U.S. system's regulators are more open and transparent than those of many other countries, which helps protect investors from mismanagement or theft of their assets. He added that it's hard to see why non-custodial staking services would need to be pulled into the regulatory net.
The guidance covers staking on proof-of-stake networks, as well as third-party operators, such as validators and custodians. It outlines three types of staking: self-staking, self-custodial staking, and custodial staking. However, the guidance does not cover practices like liquid staking and restaking, where providers may have control over staking decisions that could still be subject to securities laws.
Despite the positive response, SEC Commissioner Caroline Crenshaw issued a sharp rebuke on Thursday, suggesting that the agency's new guidance contradicts applicable laws. Crenshaw argued that the guidelines run counter to court precedents, citing cases involving U.S. crypto exchanges Kraken and Coinbase, as well as a dismissal for Binance on the same day. As a result, Crenshaw criticized the SEC's approach as a "fake it 'till we make it" strategy that does more to create uncertainty than to promote clarity in the crypto industry.
Edited by Sebastian Sinclair
Editor's note: Adds comments from Michael Bacina
- The Securities and Exchange Commission (SEC) has clarified that most crypto staking activities can operate outside the purview of federal securcies regulations.
- Protocol staking, which involves locking crypto assets for functions within public, permissionless networks, is not subject to securities laws, provided certain conditions are met.
- These assets can be used to participate in and earn rewards from the network's consensus mechanism, which is a key part of cryptocurrency technology.
- The SEC's Division of Corporation Finance emphasized that protocol staking activities do not involve the offer and sale of securities, as defined under the Securities Act of 1933.
- This new guidance effectively ends regulatory uncertainty and marks a more transparent and open approach to crypto regulation, according to Michael Bacina, an executive in residence at Global Digital Finance.
- The guidance covers staking on proof-of-stake networks, as well as third-party operators, such as validators and custodians. However, practices like liquid staking and restaking, where providers may have control over staking decisions, could still be subject to securities laws.
- Despite the generally positive response, SEC Commissioner Caroline Crenshaw criticized the new guidance as contradicting applicable laws, and suggested it creates more uncertainty in the crypto industry.
