[co-author: Hank Balaban]
The Staff provides the market with additional crypto clarity, holding that liquid staking does not qualify as a security under the Howey test.
On August 5, 2025, the SEC’s Division of Corporation Finance (the Staff or Division) published a Statement on Certain Liquid Staking Activities clarifying that, in the Staff’s view, liquid staking activities (as described by the Staff) do not involve the offer and sale of securities requiring registration under the US federal securities laws (the Liquid Staking Statement).
The Liquid Staking Statement follows the May 29, 2025, Statement on Certain Protocol Staking Activities (the Protocol Staking Statement), which addressed three forms of protocol staking activities — self- or solo staking, self-custodial staking directly with a third party, and custodial arrangements — which comprise the vast majority of staking activity (for more information, see this Latham blog post).
The Liquid Staking Statement is the first Staff statement since SEC Chairman Paul Atkins announced “Project Crypto.” That announcement followed the publication of a comprehensive report on digital assets from President Trump’s Working Group on Digital Asset Markets (for more information, see this Latham blog post and this Latham blog post).
Liquid Staking
Liquid staking is a way of participating in Proof-of-Stake (PoS) and Delegated Proof-of-Stake blockchain network validation, whereby the staker (or depositor) receives (on a one-for-one basis) newly minted “liquid staking receipt tokens” (Staking Receipt Tokens) from a third-party service provider (Liquid Staking Provider). These tokens evidence the staker’s ownership of the staked cryptoassets as well as any accrued rewards. As with other types of participation in protocol staking activities, rewards can accrue to, and slashing1 losses can be deducted from, staked cryptoassets, “in either case in a programmatic manner through self-executing computer code.”
Staking Receipt Tokens allow stakers who obtain them to maintain liquidity (and use them as collateral or for other purposes) without having to withdraw the underlying staked cryptoassets. Staking Receipt Tokens can be redeemed by holders for the underlying staked cryptoassets and any accrued staking rewards with the Liquid Staking Provider, as well as transferred or sold in the secondary market.
The Staff takes the view that the activities covered in the Liquid Staking Statement do not involve the offer or sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 and Section 3(a)(10) of the Exchange Act of 1934. As a result, in the Staff’s view, Liquid Staking Providers as well as persons involved in secondary market offers and sales of Staking Receipt Tokens do not need to comply with the registration requirements of the Securities Act or qualify for an exemption from registration.
Liquid Staking Activities Covered by the Staff Statement
According to the Staff, the Liquid Staking Statement applies to activities undertaken by Liquid Staking Providers in connection with liquid staking, including:
- their roles in connection with the earning and distribution of rewards, slashing, and the minting, issuing, and redeeming of Staking Receipt Tokens;
- holding deposited cryptoassets (in a wallet or smart contract) on behalf of the stakers;
- issuing Staking Receipt Tokens evidencing the stakers’ ownership of the deposited cryptoassets;
- facilitating the staking of the deposited cryptoassets on behalf of the stakers; and
- providing Ancillary Services.2
The Staff’s Security Analysis
As with the other recent Staff statements, the Liquid Staking Statement applies the Howey test for an investment contract in analyzing whether the transactions involved in liquid staking activities constitute the offer or sale of a “security,” emphasizing the Howey test’s focus on the economic realities of a transaction, financial product, or scheme.
Reciting the familiar elements of the Howey test looking to whether there is (i) an investment of money; (ii) in a common enterprise; (iii) premised on a reasonable expectation of profits; and (iv) to be derived from the entrepreneurial or managerial efforts of others, the Staff’s analysis in the Liquid Staking Statement primarily focuses on the final “efforts of others” prong. As with the Protocol Staking Statement, the Staff cites federal court authority in clarifying that “efforts of others” in the final prong of the Howey test means “essential managerial efforts” or “undeniably significant” efforts “which affect the failure or success of the enterprise,” and not mere “administrative and ministerial activities.”
According to the Staff, Liquid Staking Providers do not provide entrepreneurial or managerial efforts to stakers. Like the custodial arrangements described in the Protocol Staking Statement, a Liquid Staking Provider is “simply acting as an agent” on behalf of the depositor, and “does not decide whether, when, or how much” of a depositor’s cryptoassets to stake. A Liquid Staking Provider also “does not guarantee or otherwise set the amount of the rewards owed to depositors.”
Taking custody of a digital asset owner’s assets and even choosing a node operator on behalf of the asset owner are deemed “administrative or ministerial activities.” Ancillary Services are also deemed by the Staff as “merely administrative or ministerial in nature … not entrepreneurial or managerial in nature.”
However, the Staff notes that if a Liquid Staking Provider chooses whether, when, or how much of a depositor’s cryptoassets to stake, or guarantees or otherwise sets the amount of rewards owed to the depositors, its activities are “outside the scope of [the Liquid Staking Statement].” Depending on the facts and circumstances, such an arrangement may therefore be enough to satisfy the “efforts of others” prong of Howey.
The Staff states that, as described, Staking Receipt Tokens are not securities. The Staff further clarifies that:
- Staking Receipt Tokens are receipts that “merely evidence” the deposited cryptoassets held with Liquid Staking Providers.
- Staking Receipt Tokens are not securities because the underlying cryptoasset is not a security.
- Staking Receipt Tokens are not offered and sold as part of, or subject to, an investment contract because Liquid Staking Providers do not provide entrepreneurial or managerial efforts to depositors.
- While rewards may accrue to the depositor, Staking Receipt Tokens themselves do not generate the rewards; instead, “rewards are generated from the underlying Protocol Staking Activities” in a programmatic manner.
Limitations and What’s Not Covered
As noted by the Staff in a footnote, the Liquid Staking Statement does not address restaking (i.e., the restaking of cryptoassets that are already staked on one blockchain to further secure another blockchain, network, or protocol).
In addition, the Staff provides a caveat that any definitive determination of security status remains subject to the facts and circumstances involved, and any differences from the models of staking activity directly addressed in the Liquid Staking Statement may impact the analysis.
Commissioner Peirce Supports the Staff Statement
Commissioner Hester M. Peirce published a statement supporting the Liquid Staking Statement, agreeing with the Staff’s assessment that liquid staking “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.”
Commissioner Crenshaw Again Disagrees
Commissioner Caroline A. Crenshaw published a statement criticizing the Liquid Staking Statement. In her view, rather than “clarifying the legal landscape … [the Liquid Staking Statement] only muddies the waters.” She asserted that the Staff made assumptions about how liquid staking operates that “might not reflect prevailing conditions on the ground.”
As in her response to the Protocol Staking Statement, Commissioner Crenshaw highlighted that the conclusion of the Staff in the Liquid Staking Statement only applies if the assumptions prevail. She warned market participants that any deviation from the assumptions in the Liquid Staking Statement fall outside the scope of the Staff’s blanket determination.
Conclusion
With Liquid Staking Statement, the Staff provides further clarity to the digital assets markets around the types of activities service providers and consumers can undertake without fear of enforcement based on the registration provisions of the US federal securities laws. The parameters provided in the Liquid Staking Statement allow market participants to innovate without the uncertainty of prior years.
