SEC Says Liquid Staking Doesn't Run Afoul of Securities Laws

Participants in liquid staking, including depositors and providers, do not need to worry about securities law disclosures, the U.S. Securities and Exchange Commission said in a staff statement on Tuesday.

The statement, published by the Division of Corporation Finance, is specific to liquid staking, where participants deposit "covered crypto assets" into a third-party staking protocol provider, which in turn provides receipt tokens to the depositors.

Liquid staking allows users to lock up tokens in proof-of-stake blockchains while still maintaining access to their funds through derivative tokens. These tokens can then be used for various DeFi activities. Currently, liquid staking across all blockchains has nearly $67 billion in total-value-locked (TVL), with $31.7 billion in Lido, according to DefiLlama data.

Tokens tied to a number of liquid staking protocols, including Lido, Jito and Rocket Pool, went up marginally after the SEC statement was published, but are still down on the day's trading, CoinGecko showed.

To be sure, the SEC had previously published another staff statement addressing other forms of staking. Similar to the previous statement, Tuesday's note on liquid staking is not the same as binding guidance from the Commissioners or regulations that have gone through the SEC's formal rulemaking process.

However, the new statement does signal how the agency is thinking about the issue and suggests that any crypto industry participant who follows the guidance will not be sued by the regulator.

Tuesday's statement is specific to what liquid staking providers do, "including their roles in connection with the earning and distribution of rewards, slashing, and the minting, issuing and redeeming of Staking Receipt Tokens," as well as other ancillary services. The main caveat is that the deposited crypto assets cannot be "part of or subject to an investment contract."

"In a Liquid Staking arrangement, the Liquid Staking Provider (whether a Node Operator or not) does not provide entrepreneurial or managerial efforts to Depositors for whom it provides this service," the statement said.

"These arrangements are similar to those discussed in the Protocol Staking Statement with respect to 'Custodial Arrangements.' The Liquid Staking Provider does not decide whether, when, or how much of a Depositor’s Covered Crypto Assets to stake and is simply acting as an agent in connection with staking the Covered Crypto Assets on behalf of the Depositor," the statement said.

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