On August 5, 2025, the staff (the “Staff”) of the Division of Corporation Finance (the “Division”) issued new guidance regarding certain Protocol Staking (defined below) activities. This guidance builds on a May 2025 Staff statement covering certain other types of Protocol Staking, discussed here. Both statements provide the Staff’s views on the staking of certain crypto assets (the “Covered Crypto Assets”) that are intrinsically linked to the programmatic functioning of public, permissionless networks that use proof-of-stake as a consensus mechanism (“PoS Networks”). Covered Crypto Assets are (1) used to participate in and/or earned for participating in a PoS network’s consensus mechanism or (2) used to maintain and/or earned for maintaining the technological operation and security of the PoS network (these activities are collectively referred to as “Protocol Staking”). The May 2025 Staff statement addressed three types of Protocol Staking: self (or solo) staking, self-custodial staking with a third party, and custodial staking; the current Staff statement addresses “liquid staking.”
What is Liquid Staking?
Liquid staking is a type of Protocol Staking in which an owner of Covered Crypto Assets deposits the Assets with a third-party Protocol Staking service provider (the owner is referred to as a “Depositor”) in return for newly “minted” crypto assets (“Staking Receipt Tokens”), issued on a one-for-one basis with the deposited Covered Crypto Assets, that evidence the Depositor’s ownership of the deposited Assets and any related rewards. Importantly, a Staking Receipt Token is, just as the name suggests, a “receipt” for the deposited Covered Crypto Assets. A Staking Receipt Token can be used to provide liquidity for holders without needing to withdraw the deposited Assets from staking.
A “Liquid Staking Provider” helps the Depositor to stake the deposited Covered Crypto Assets in return for a “fee that reduces the amount of rewards that would otherwise accrue to the deposited Covered Crypto Assets.” The Liquid Staking Provider retains control of the Covered Crypto Assets at all times, while the Depositor retains ownership of the Assets. There are two types of Liquid Staking Providers. Protocol-based liquid staking providers perform all of the steps of the above process—the deposit of Covered Crypto Activities into a protocol by the Depositor, the staking of the Assets, and the minting and issuance of Staking Receipt Tokens to the Depositors—through self-executing computer code. In the alternative, third-party liquid staking providers perform the steps outlined above.
As with other types of Protocol Staking, in liquid staking, rewards can accrue to, and slashing losses can be deducted from, staked Covered Crypto Assets. Specifically, either (i) a Staking Receipt Token itself evidences the rewards and slashing losses, such that the ratio between the Staking Receipt Token and the Covered Crypto Assets varies, or (ii) holders of Staking Receipt Tokens receive additional Staking Receipt Tokens in connection with rewards and lose Staking Receipt Tokens in connection with slashing losses, so the one-to-one ratio remains constant. Rewards include newly created Covered Crypto Assets or a percentage of transaction fees, paid in Covered Crypto Assets.
Analysis of Liquid Staking Activities
The Staff’s view is that “Liquid Staking Activities,” just like the other types of Protocol Staking the Staff recently addressed, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). Therefore, participants in these activities do not need to register these transactions under the Securities Act or fall within one of the Securities Act’s exemptions from registration. This view is limited to the following “Liquid Staking Activities”:
- the activities discussed above that are undertaken by Liquid Staking Providers in connection with liquid staking, including activities in connection with earning and distributing rewards; slashing losses; and the minting, issuing and redeeming of Staking Receipt Tokens, such as holding deposited Covered Crypto Assets, issuing Staking Receipt Tokens, and facilitating the staking of the deposited Assets; and
- providing Ancillary Services.[1]
Repeating from other recent Staff guidance, the Staff noted that a Covered Crypto Asset is not a type of security specifically enumerated in either the Securities Act or the Exchange Act. Therefore, the Staff analyzed transactions involving Covered Crypto Assets in the context of Liquid Staking Activities under the “investment contract” test delineated by SEC v. W.J. Howey Co.[2] Using the Howey test, as further interpreted by the federal courts, the Staff analyzed the economic realities of Liquid Staking Activities by considering whether there is an investment of money in a common enterprise based on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.[3]
In the Staff’s view, a Liquid Staking Provider does not provide “entrepreneurial or managerial efforts,” and instead simply acts as an agent in connection with staking the Covered Crypto Assets on behalf of the Depositor. The Liquid Staking Provider does not make decisions with regard to the quantity of Assets to stake or otherwise, and does not guarantee any rewards to the Depositor.[4] Even when Liquid Service Providers also provide Ancillary Services, such Services are “merely administrative or ministerial in nature,” rather than managerial. In other words, the Howey test is not satisfied with regard to such Liquid Staking Activities.
Analysis of Staking Receipt Tokens
The Staff similarly concludes that the offer and sale of Staking Receipt Tokens does not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act or Section 3(a)(10) of the Exchange Act, such that Liquid Staking Providers involved in the process of minting, issuing and redeeming Staking Receipt Tokens, and those involved in secondary market transactions, do not need to register the transactions under the Securities Act or fall within one of the Securities Act’s exemptions from registration.[5]
A Staking Receipt Token is not specifically included in the definition of “security.” However, the definition of “security” includes “receipt for” any security, and, as previously stated, a Staking Receipt Token is a receipt that evidences the holder’s ownership of the deposited Covered Crypto Asset. That said, the Staff concludes that, because a Covered Crypto Asset is not a security, a Staking Receipt Token also cannot be a security.
In addition, the Staff considered whether a Staking Receipt Token is “offered and sold as part of or subject to an investment contract” under the Howey test, and answers this question in the negative. Specifically, the parties involved in minting, issuing and redeeming Staking Receipt Tokens do not provide entrepreneurial or managerial efforts to Staked Receipt Token holders. Any value realized by such holders is derived from the value of the deposited Covered Crypto Assets themselves, including the value of rewards, rather than from the entrepreneurial or managerial efforts of the Liquid Staking Provider or any other third party, and, therefore, the Howey test is not met.
Commissioner Responses
As we have become accustomed to seeing, Commissioners Peirce and Crenshaw both responded to the Staff statement. Commissioner Peirce voiced her support for the Staff’s position on Liquid Staking Activities, analogizing to the transfer of fungible goods, such as “gold bars or cereal grains,” in return for a receipt, which “simplif[ies] transaction settlement and unlock[s] greater liquidity for those goods.” In other words, Liquid Staking Activities are “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 repeated her critique of other related Staff guidance, namely, that the statement lacks clarity, such that it is not easily applicable to real-world activities. She argues that the statement “stacks factual assumption on top of factual assumption on top of factual assumption,” rather than referring to the factual realities of how liquid staking actually works in practice. In addition, the guidance only narrowly applies to the exact factual circumstances laid out in the statement, such that it is not applicable to any activity outside of these direct parameters, which further limits its practical usefulness.
Read the Staff statement here, Commissioner Peirce’s response here, and Commissioner Crenshaw’s response here.
[1] “Ancillary Services” includes (i) slashing coverage, where a Service Provider reimburses or indemnifies a staking customer against loss resulting from slashing, (ii) early unbonding, where a Service Provider allows Covered Crypto Assets to be returned to an owner before the end of the protocol’s unbonding period, (iii) alternate rewards payment schedules and amounts, and (iv) aggregation of covered crypto assets, where a Service Provider offers Covered Crypto Asset owners the ability to aggregate their Covered Crypto Assets to meet a protocol’s staking minimums.
[2] 328 U.S. 293 (1946).
[3] According to federal case law, Howey’s “efforts of others” requirement is satisfied when “the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise,” rather than administrative and ministerial activities. See, e.g., SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973) and First Fin. Fed. Sav. & Loan v. E.F. Hutton Mortgage, 834 F.2d 685 (8th Cir. 1987).
[4] The Staff specifically exempts situations where a Liquid Staking Provider selects whether, when, or how much of a Depositor’s Covered Crypto Assets to stake from its guidance in the statement.
[5] This position does not apply where deposited Covered Crypto Assets are part of or subject to an investment contract.
[View source.]
