SEC Greenlights Liquid Staking It Once Targeted — A Major Win for DeFi

Key Takeaways

• Certain crypto staking activities no longer constitute securities offerings.
• Former SEC staffers have criticized the guidance and compared it to the Lehman Brothers.
• The move could pave the way for enabling Ethereum ETF staking.

The U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance has issued guidance granting certain liquid staking services a conditional green light and exempting them from registration under federal securities laws.

Liquid Staking

Per the guidance , the SEC has stated that particular crypto staking activities do not constitute securities offerings.

More specifically, these activities and their associated tokens, referred to as “Staking Receipt Tokens” (SRTs), do not fall under federal securities laws.

Interestingly, the SEC leveraged the often-criticized Howey Test to determine the status of SRTs.

This test determines whether or not a transaction constitutes an “investment contract” and thus becomes a security.

Following this test, the agency determined that SRTs do not meet the “efforts of others requirement.”

It states that because the SRT “is derived from the value of the deposited Covered Crypto Assets,” it is not an entrepreneurial or management effort of the staking provider or a third party.

Furthermore, the move could be viewed as a precursor to enabling staking services on crypto exchange-traded funds (ETFs), namely Ethereum (ETH), which could see billions in fresh capital pour into funds.

The move, largely praised by the crypto industry, has also been met with dissent within the SEC.

Conflict

That said, former SEC chief of staff, Amanda Fischer, doesn’t view the development positively and likened liquid staking to the Lehman Brothers’ use of client assets as collateral for transactions. She writes:

“The SEC’s latest crypto giveaway is to bless the same type of rehypothecation that cratered Lehman Brothers — only in crypto it’s worse because you can do it without any SEC or Fed oversight.”

In response, VanEck’s Head of Digital Assets Research, Matthew Sigel, clapped back at Fischer.

There’s some division in the agency, as SEC Commissioner Caroline Crenshaw has also criticized the move for adding further confusion to the system instead of “clarifying the legal landscape.”

SEC Commissioner Hester “Crypto Mom” Peirce, naturally, supported the decision , hailing it as a”new solution to an old problem.”

She adds that this statement clarifies the SEC’s view that liquid staking activities, “in connection with protocol staking”, doesn’t constitute securities activities.

“Instead, it is a variant on the longstanding practice of depositing goods with an agent who performs a ministerial function in exchange for a receipt that evidences ownership of the goods.”

With this acknowledgment in mind, those who had been burned by the SEC under Gary Gensler, such as the co-founder of the Kraken crypto exchange, Jesse Powell, who has cheekily requested a refund on the $30 million fine the firm had to pay for its staking-as-a-service program.

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