SEC has a shocking update for crypto industry
Certain liquid staking activities associated with protocol staking do not constitute the sale of securities, the Securities and Exchange Commission's (SEC) Division of Corporation Finance said in a statement on Aug. 5.
Parties involved in the minting, offering, and redeeming of liquid staking activities are not required to register with the federal regulator under the securities laws, it added.
Let's quickly understand what staking means.
In crypto, staking is the process of locking up your crypto assets like Ethereum to help secure a proof-of-stake (PoS) blockchain network in exchange for rewards.
What's peculiar to liquid staking is that the assets you stake don't get locked up, remain liquid, and can be traded. Here is how it happens.
When you stake your crypto assets, you receive a tokenized version of these assets, such as sETH, and what's special is that these tokens can be traded.
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In its latest statement, the SEC's Division said that as per its view, the offer and sale of these "Staking Receipt Tokens" do not involve the offer and sale of securities unless the deposited Covered Crypto Assets are part of or subject to an investment contract.
“Under my leadership, the SEC is committed to providing clear guidance on the application of the federal securities laws to emerging technologies and financial activities,” SEC Chairman Paul Atkins said. “Today’s staff statement on liquid staking is a significant step forward in clarifying the staff’s view about crypto asset activities that do not fall within the SEC’s jurisdiction."
Commissioner Hester Peirce said the Division's statement clarifies that liquid staking activities in connection with protocol staking don't constitute selling securities. "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," she added.
Crypto industry welcomes regulatory clarity
Alexander Grieve, VP of Government Affairs at the crypto investment firm Paradigm, celebrated the SEC's latest move.
Miles Jennings, Head of Policy & General Counsel at the crypto-focused venture capital firm Andreessen Horowitz (a16z) called it a "huge win."
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Notably, crypto ETF issuers, such as Bitwise, have been trying to get the SEC to allow staking for their Ethereum ETFs.
Nate Geraci, President of NovaDius Wealth Management, is hopeful and said, "Think last hurdle in order for SEC to approve staking in spot eth ETFs... Liquid staking tokens will be used to help manage liquidity w/in spot eth ETFs, something that was a concern for SEC."