On May 29, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance (Division) published its Statement on Certain Protocol Staking Activities. The statement addresses the Division's views on certain activities known as "staking" on networks that use proof-of-stake (PoS) as a consensus mechanism (PoS Networks). The statement refers to crypto assets that are used to participate in and/or earned for participating in a network's consensus mechanism, or otherwise used to maintain and/or earned for maintaining network security, as "Covered Crypto Assets" and refers to their staking on PoS Networks as "Protocol Staking." The statement provides detailed descriptions of the activities involved in Protocol Staking and the use of Covered Crypto Assets in such activities.
The statement further defines "Protocol Staking Activities" as (1) staking Covered Crypto Assets on a PoS Network; (2) the activities undertaken by third parties involved in the Protocol Staking process ‒ including, but not limited to, third-party Node Operators, Validators, Custodians, Delegates and Nominators (Service Providers) ‒ including their roles in connection with the earning and distribution of rewards; and (3) providing "Ancillary Services" as defined in the statement. The statement defines and discusses four specific types of Protocol Staking Activities in detail: "Self (or Solo) Staking," "Self-Custodial Staking Directly with a Third Party," "Custodial Arrangements" and "Ancillary Services." In each instance, the statement notes the Division's views that the activities do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (Securities Act) or Section 3(a)(10) of the Securities Exchange Act of 1934 (Exchange Act) and do not meet the "investment contract" test set forth in SEC v. W.J. Howey Co.
SEC Commissioners Hester M. Peirce and Caroline A. Crenshaw each published their own comments on the statement. Peirce, who leads the SEC's Crypto Task Force, said the "statement provides welcome clarity for stakers and 'staking-as-a-service' providers in the United States" and welcomed feedback. Crenshaw criticized the statement, noting, among other things, that courts in recent SEC enforcement actions ruled that staking services were properly alleged to be investment contracts.
For more information, please refer to the following links:
- Statement on Certain Protocol Staking Activities
- Providing Security is not a "Security" – Division of Corporation Finance's Statement on Protocol Staking
- Response to Staff Statement on Protocol Staking Activities: Stake it Till You Make It?
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