Key Takeaways
Background and Context
On August 5, 2025, the SEC’s Division of Corporation Finance (the Division) issued a statement addressing the regulatory status of “liquid staking” activities in the crypto sector (the Liquid Staking Statement or Statement).[1] The Statement builds on a previous Division statement on protocol staking activities (the Protocol Staking Statement)[2] and aims to provide clarity for market participants trying to navigate federal securities laws.
What Is Liquid Staking?
“Liquid staking” as described in the Statement refers to staking in which crypto asset holders (Depositors) can deposit their assets with a third-party protocol staking service provider (Liquid Staking Provider) and receive “Staking Receipt Tokens” (also known as “Liquid Staking Tokens” or LSTs) in return. These tokens represent ownership of the underlying crypto assets (typically on a one-to-one basis) and may also reflect any staking rewards or “slashing” losses.[3] Importantly, Staking Receipt Tokens enable holders to maintain liquidity, allowing them to sell or transfer the Staking Receipt Tokens or use the tokens as collateral or in other crypto applications, without withdrawing the underlying assets from staking.
Liquid staking can be facilitated by protocol-based providers or by third-party custodians using smart contracts. In both cases, the provider or custodian stakes the assets on behalf of the Depositor, who retains ownership of the deposited crypto assets. Rewards are deposited with the Liquid Staking Provider, and staked crypto assets are forfeited if there are slashing losses—in either case, in a programmatic manner through self-executing computer code. Accordingly, rewards and losses are reflected in the value or quantity of the Staking Receipt Tokens.
The Division's Analysis
The “Covered Crypto Assets” at issue in the Liquid Staking Statement do not constitute any of the financial instruments that are specifically enumerated in the definition of “security” under the Securities Act of 1933 or the Securities Exchange Act of 1934.[4] Therefore, the analysis focuses on whether transactions involving Covered Crypto Assets in the context of liquid staking are “investment contracts” as defined in SEC v. W.J. Howey Co.[5] Applying the Howey test, the Division concludes that the activities of Liquid Staking Providers are administrative or ministerial, rather than the entrepreneurial or managerial efforts required to constitute an investment contract under the Howey test. Under the Division’s analysis, Liquid Staking Providers do not make discretionary decisions about staking or guarantee rewards.[6] Further, Staking Receipt Tokens simply evidence ownership of the deposited crypto assets; any economic benefit comes in the form of staking rewards generated on the underlying blockchain protocol, not from the Liquid Staking Provider’s efforts. As a result, the Division concluded that the liquid staking activities described in the Statement do not involve the offer and sale of securities.
The Division also concluded that Staking Receipt Tokens “are not offered and sold as part of or subject to an investment contract because the parties involved in the process of minting, issuing and redeeming Staking Receipt Tokens do not provide entrepreneurial or managerial efforts to Stak[ing] Receipt Token holders and any economic benefits realized by Staking Receipt Token[] holders are not derived from any such efforts.” Instead, the Division stated that the value of Staking Receipt Tokens is derived directly from the value of the deposited crypto assets, rather than from any entrepreneurial or managerial efforts by Liquid Staking Providers.
The Division also suggested an exception to the foregoing conclusion (which we address below) for the circumstance where “the deposited [crypto assets] are part of or subject to an investment contract.” The Division provided no explanation for this purported exception other than to note that its view is not dispositive as to whether any specific Staking Receipt Token is offered or sold as a security.
There are important limitations on the Division’s conclusions in the Liquid Staking Statement. The Statement is limited to certain activities undertaken by Liquid Staking Providers in connection with liquid staking that relate to (1) minting, issuing, and redeeming Staking Receipt Tokens; (2) holding deposited crypto assets on behalf of Depositors; (3) staking deposited crypto assets on behalf of Depositors; (4) earning and distributing rewards; (5) slashing; and (6) providing ancillary services such as slashing coverage, early unbonding from the stake, alternate rewards payment schedules, and aggregation of crypto assets (all as described in the Division’s Protocol Staking Statement). Significantly, if a Liquid Staking Provider takes on additional managerial roles—such as making discretionary staking decisions or guaranteeing rewards, which may be expressed as “guaranteed returns” or “guaranteed yield”—the arrangement may fall outside the scope of the Liquid Staking Statement and could be subject to registration requirements under the federal securities laws unless an exemption applies.[7] The Division also emphasized that its views are not legally binding, do not constitute formal SEC guidance, and may change if the facts and circumstances differ from those described in the Liquid Staking Statement.
Analysis and Implications of the Division’s Statement on Liquid Staking
The Division’s Liquid Staking Statement, in combination with its Protocol Staking Statement, provides important guidance to crypto market participants with respect to the Division’s current views on liquid staking activities and Staking Receipt Tokens. Generally speaking, the Division concludes that neither liquid staking activities nor the issuance and delivery of a Staking Receipt Token will involve the offer and sale of securities under the federal securities laws. It remains important, however, for market participants to remain vigilant in checking whether the liquid staking activities contemplated by a Liquid Staking Provider, including the rights associated with the Staking Receipt Token and the circumstances of the issuance and delivery of that token, go beyond the parameters set forth in the Liquid Staking Statement. For example, the Statement makes plain that where a Liquid Staking Provider “provides the means” for a Staking Receipt Token holder to “generate additional returns,” those activities are outside the scope of the Statement.[8] Similarly, by noting that “[t]he Division’s view is not dispositive as to whether any specific Liquid Staking Activity … involves the offer and sale of a security,”[9] the Statement suggests that where the SEC has in the past brought enforcement actions against a staking service provider that engaged in significant managerial efforts to generate returns for participants, such provider activity is not covered by the Statement and may still lead to an enforcement action or private litigation against the staking service provider.
The Division’s views on liquid staking activities, and particularly on Staking Receipt Tokens, are consistent with much of the analysis we provided to the SEC’s Crypto Task Force on this topic.[10] That said, we believe market participants need to be careful not to misread the Division’s purported exception for Staking Receipt Tokens where the deposited crypto asset is part of or subject to an investment contract. Consistent with the analysis in the Liquid Staking Statement, we believe that the facts and circumstances surrounding the offer and sale of the Staking Receipt Token will be dispositive on the question of whether the Staking Receipt Token is offered and sold as an investment contract security, rather than solely whether the related deposited crypto asset is part of or subject to an investment contract. Indeed, if the Staking Receipt Token is associated with a deposited crypto asset that is part of or subject to an investment contract, that fact alone should not affect the security or non-security status of the Staking Receipt Token. Similarly, a Staking Receipt Token associated with a deposited crypto asset that is not a security may still be offered and sold pursuant to an investment contract. In other words, crypto market participants should not read the Division’s Liquid Staking Statement to conflate the Covered Crypto Assets—the Staking Receipt Token and the deposited crypto asset—with the transactions in which those assets may be offered and sold.[11]
Endnotes
[1] “Statement on Certain Liquid Staking Activities,” Division of Corporation Finance (August 5, 2025).
[2] “Statement on Certain Protocol Staking Activities,” Division of Corporation Finance (May 29, 2025).
[3] As noted in the Division’s Protocol Staking Statement, a node operator or validator may have some of its staked crypto assets forfeited, or “slashed,” if it engages in detrimental activity, such as efforts to validate invalid blocks, or fails to adhere to the blockchain network’s technical requirements.
[4] See Liquid Staking Statement at 1 & n.3; Protocol Staking Statement at 1 & n.3. The Liquid Staking Statement, like the Protocol Staking Statement, focuses solely on “Covered Crypto Assets” as defined in the Protocol Staking Statement. Covered Crypto Assets are crypto assets where the smart contracts defining the assets do not include coding for intrinsic economic properties or rights (e.g., no ability to generate passive yield or convey rights to future income or profits). Each reference to “crypto assets” in this client alert will carry this meaning.
[5] 328 U.S. 293 (1946). The Howey test requires an assessment of whether there is (1) an investment of money (2) in a common enterprise (3) with an expectation of profits derived from the entrepreneurial or managerial efforts of others.
[6] “Rewards” in this context refers to staking rewards earned when crypto asset or “token” holders agree to “stake” their tokens on a blockchain network that uses a “proof-of-stake” consensus mechanism to validate transactions. Locking up tokens, or “staking,” is done by validators who either stake their own tokens or stake tokens provided by blockchain users who have agreed to participate in the stake and delegate authority to validators to manage the stake. The rewards to be earned take the form of additional tokens (or fractions of a token) and are based on the duration of the stake and the amount of tokens staked. To the extent that validators successfully validate blockchain transactions, they earn rewards on their staked tokens, which are shared with blockchain users who delegated authority to validators to stake their tokens.
[7] See, e.g., Complaint, SEC v. Payward Ventures, Inc. (d/b/a Kraken), No. 23-cv-588 (N.D. Cal. Feb. 9, 2023). In the Payward Ventures case, the SEC alleged that the defendant company engaged in conduct covered by the Securities Act where it aggregated and obtained full control of all of the crypto assets of participating investors, required no staking minimums, promised specific investment returns, and determined and paid returns that were not necessarily dependent on the actual rewards the company earned from staking and validating transactions.
[8] Liquid Staking Statement, at n.24.
[9] Id. at n.11.
[10] See Letter from James Q. Walker, Lowell Ness, Arthur S. Greenspan, Valeska Pederson Hintz, and Zeeve Rose to Commissioner Hester M. Peirce and Crypto Task Force, April 23, 2025, stating that Staking Receipt Tokens “should have the status of the [deposited token], and in that regard, are not intrinsically securities but may be offered and sold as securities.”
[11] See, e.g., SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 323-24 (S.D.N.Y. 2023) (observing that anything of value may be sold via investment contracts “depending on the circumstances of [their] sales”); see also SEC v. Binance Holdings Ltd., 738 F. Supp. 3d 20, 43-44 (D.D.C. 2024) (“Obviously, [citrus] groves are not securities, yet the seminal case on this point found the set of contracts and expectations surrounding their sale to be an investment contract for purposes of the Act.”).
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