SEC's Liquid Staking Guidance: A DeFi and Institutional Boost?
SEC Guidance on Liquid Staking: Industry Reacts
The crypto industry is largely interpreting the U.S. Securities and Exchange Commission’s (SEC) latest guidance on liquid staking as a positive regulatory development. Stakeholders believe it could significantly advance both decentralized finance (DeFi) and institutional engagement with digital assets.
The SEC staff issued guidance stating that, under specific conditions, liquid staking activities and the resulting tokens may not be classified as securities offerings.
Mara Schmiedt, CEO of blockchain developer company Alluvial, stated, “Institutions can now confidently integrate LSTs into their products which is sure to drive new revenue streams, expand customer bases, and enable the creation of secondary markets for staked assets. This decision sets the stage for a wave of new products and services that will accelerate mainstream participation in digital asset markets.”
Several crypto companies have actively sought clarity from the SEC regarding liquid tokens. Prior to the guidance, a group of Solana stakeholders had urged the SEC to consider their inclusion in exchange-traded funds.
What is Liquid Staking?
Liquid staking involves depositing crypto assets with a third-party provider in exchange for staking receipt tokens. These tokens can then be traded or used within DeFi platforms, eliminating the waiting period typically associated with unstaking.
“Today’s guidance on liquid staking shows the same nuanced understanding of LST technology that the Crypto Task Force exhibited when we met with them on this topic back in February,” said Jito Labs CEO Lucas Bruder.
Internal Dissent within the SEC
Despite industry optimism, the SEC's guidance has faced criticism from within the agency. Commissioner Caroline Crenshaw voiced strong opposition, cautioning that the guidance is based on potentially flawed assumptions and lacks definitive regulatory certainty.
Related: What is liquid staking, and how does it work?
The Howey Test and Liquid Staking
Katherine Dowling, General Counsel and Chief Compliance Officer at Bitwise, clarified that “the SEC is making clear that CERTAIN liquid staking activities do not involve securities and therefore would not be required to register.”
The classification hinges on the Howey test, which determines whether an asset or transaction constitutes a security.
The SEC suggests that liquid staking providers performing only “administrative or ministerial” functions, such as issuing tokens representing ownership of staked assets, might not trigger securities registration. This includes issuing “staking receipt tokens.”
According to the SEC, “In evaluating the economic realities of a transaction, the test is whether 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.”
Increased institutional adoption may also benefit retail traders and DeFi services. Schmiedt suggests, “Retail platforms will be able to attract more users by providing seamless access to staking rewards without lock-up constraints, while the broader ecosystem benefits from increased liquidity and innovation.”