SEC Clarifies Securities Status for Liquid Staking Tokens

The SEC issued a statement on liquid staking tokens (LSTs), clarifying how these and other staking activities fit within securities laws. The Commission generally loosened existing rules, but it’s not a laissez-faire approach.

To be clear, this is a non-binding statement, and the SEC’s position on the subject could change in the future. For now, however, this added clarity could greatly assist crypto firms.

The SEC’s View on Liquid Staking

Federal US crypto regulation is in a hot moment right now, with the SEC’s “Project Crypto” making waves and a joint pro-Web3 policy initiative with the CFTC.

Today, the SEC’s Division of Corporate Finance issued another clarification, seemingly loosening restrictions on Liquid Staking Tokens:

“It is the Division’s view that Liquid Staking Activities in connection with Protocol Staking do not involve the offer and sale of securities…Accordingly, it is the Division’s view that participants… do not need to register with the Commission transactions under the Securities Act,” the statement read.

Liquid Staking is a popular way to gain crypto yields, and its prominence in the industry is steadily growing.

By clarifying that LSTs are generally not securities, the SEC has opened a little space for businesses to operate freely. This follows a letter issued by several key industry players last week, requesting that the SEC permit the use of LSTs in proposed Solana exchange-traded products.

The provider must not control the staking process ,and the new tokens must only represent ownership of the deposited assets, but still, this is progress.

ETF Staking: A Helpful Precedent?

In a way, this statement echoes some of the SEC’s earlier statements on liquid staking this year. After a period of uncertainty, the Commission officially approved most staking activity on ETFs in May.

This prompted issuers to include these capabilities in new ETF filings, and some staking ETFs are already trading. Nate Geraci, a prominent Bloomberg analyst, claimed that this ruling represents a “last hurdle” for the Commission to approve staking in Ethereum spot ETFs. Hopefully, it’ll open up new opportunities in several sectors.

Still, this isn’t a complete free-for-all for crypto liquid staking activities in the US. If staking tokens are offered as part of or subject to an investment contract, the Howey test still applies.

There are plenty of exceptions where these activities would unequivocally count as securities contracts, mandating SEC jurisdiction.

Nonetheless, this statement provides vital clarity, and these positions could help businesses understand how to meet compliance.