On May 29, 2025, the Staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (SEC) issued a statement[1] (the “Staking Statement”) concluding that certain protocol staking activities are not securities offerings subject to SEC jurisdiction.
Key Takeaways
- “Protocol Staking Activities” (as defined below), according to the Staff, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934 and, accordingly, are not required to comply with the federal securities laws.
- The Staff concluded that under the Howey test,[2] Protocol Staking Activities are not “entrepreneurial” or “managerial” in nature, but rather “administrative” or “ministerial.”
- In separate public statements, Commissioner Caroline Crenshaw criticized[3] the Staking Statement and said that the guidance runs afoul of earlier rulings in SEC enforcement actions and further confuses the SEC’s treatment of crypto assets, while Commissioner Hester Peirce stated that the guidance provides welcome regulatory clarity[4] for stakers and “staking-as-a-service” providers.
What is Protocol Staking?
“Staking” is a process that allows holders of crypto assets to earn rewards in exchange for helping to secure a proof of stake (PoS) blockchain network. PoS blockchain networks employ a “consensus mechanism” which enables the distributed network of unrelated computers (“nodes”) that maintain the peer-to-peer network to agree on the “state” of the network, without the need for a trusted third-party intermediary. As part of this mechanism, the node operators lock up (“stake”) the network’s native digital assets, and in turn may be selected as “validators” who participate in the network’s operation, including the validation of new transactions in the network. These crypto assets may be forfeited if the validator acts dishonestly. In exchange for securing the network, validators earn rewards in the form of additional crypto assets, creating an economic incentive for network participation.
In addition to staking crypto assets themselves (“self-staking” or “solo-staking”), participants may grant validation rights to a third party to stake on their behalf, while retaining custody and ownership of such assets (“self-custodial staking”). Participants may also grant validation rights and custody, while retaining ownership, to a third party to stake on their behalf (“custodial staking”).
The Staking Statement specifically addresses staking activities involving crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network and used for participating in such network’s consensus mechanism or network security (“Covered Crypto Assets”). Notably, the Staking Statement does not cover assets that have “intrinsic economic properties or rights, such as generating a passive yield of conveying rights to future income, profits, or assets of a business enterprise.”[5]
The Staking Statement applies to the following activities (together, “Protocol Staking Activities”):
- Staking Covered Crypto Assets on a PoS network;
- Activities undertaken by third parties (e.g., node operators, validators, custodians, delegates, and nominators) involved in the protocol staking process; and
- Providing ancillary services (discussed below).
SEC Staff’s Legal Analysis Under Howey
The Staking Statement relies on the Howey test to determine whether the Protocol Staking Activities constitute “investment contracts” subject to U.S. securities laws and registration requirements. Under the Howey test, an investment contract security is formed if there is an investment of money in a common enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.[6] Longstanding case law distinguishes the entrepreneurial or managerial efforts of others from those which are merely administrative or ministerial, whereby the latter is insufficient under Howey. The Staff’s analysis is derived largely from this distinction.
- Self-Staking or Solo-Staking. Because node operators contribute their own time and resources, the Staff concluded that self-staking is not undertaken with a reasonable expectation of profits to be derived from the managerial or entrepreneurial efforts of others. In addition, the Staff’s view is that the node operator’s expected financial incentive is derived solely from engaging in an administrative or ministerial activity to secure the PoS network and facilitate its operation, rather than any third party’s managerial or entrepreneurial efforts upon which the PoS network’s success depends.
- Self-Custodial Staking. Similarly, where a Covered Crypto Asset owner grants validation rights to a node operator to stake on its behalf, the owner has no expectation of profit from the entrepreneurial or managerial efforts of others. The underlying conduct of protocol staking, pursuant to the above analysis, remains administrative or ministerial in nature.
- Custodial Staking. Where a Covered Crypto Asset owner grants validation rights and custody of its deposited Covered Crypto Assets to a custodian to stake on its behalf, the custodian does not decide whether, when, or how much to stake, but acts simply as an agent of the owner without making entrepreneurial or managerial decisions.
- Ancillary Services. The Staking Statement also addresses the following “ancillary services” that service providers may provide in connection with protocol staking, all of which the Staff views as merely administrative rather than entrepreneurial under the Howey test: (1) slashing coverage;
(2) early unbonding; (3) alternate rewards payment schedules and amounts; and (4) asset aggregation.
The Staff clarified that where the facts vary from those presented in the Staking Statement, a definitive determination as to whether the specific Protocol Staking Activity involves the offer and sale of a security would require an analysis of the facts.
Conclusion
The Staking Statement follows recent guidance from the Staff stating that certain proof-of-work protocol mining activities are not securities transactions,[7] as well as guidance from SEC’s Division of Trading and Markets addressing FAQs relating to crypto asset activities and distributed ledger technology[8] and the withdrawal[9] of the 2019 Joint Staff Statement[10] on broker-dealer custody of digital assets.
Although not binding, the Staking Statement is yet another development demonstrating the SEC’s shift toward providing less regulation of crypto assets. Market participants should expect continued movement in crypto regulation as the SEC Crypto Task Force works to develop a hospitable regulatory framework for crypto assets.
[1] See Statement on Certain Protocol Staking Activities (May 29, 2025) (the “Staking Statement”).
[2] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
[3] See Response to Staff Statement on Protocol Staking Activities: Stake it Till You Make It? (May 29, 2025).
[4] See Providing Security is not a “Security” – Division of Corporation Finance’s Statement on Protocol Staking (May 29, 2025).
[5] See the Staking Statement, footnote 3.
[6] United Housing Found., Inc. v. Forman, 421 U.S. 837, 852 (1975).
[7] See Division of Corporation Finance, Statement on Certain Proof-of-Work Mining Activities (Mar. 20, 2025).
[8] See Division of Trading and Markets: Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (May 15, 2025).
[9] See Withdrawal of Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, Division of Trading and Markets, U.S. Securities and Exchange Commission and Office of General Counsel, Financial Industry Regulatory Authority (May 15, 2025).
[10] See Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, Division of Trading and Markets, U.S. Securities and Exchange Commission and Office of General Counsel, Financial Industry Regulatory Authority (July 8, 2019; Withdrawn May 15, 2025).
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