On May 29, 2025, the SEC’s Division of Corporation Finance (Corp Fin) released a Statement on Certain Protocol Staking Activities clarifying that certain crypto asset staking activities on proof-of-stake (PoS) blockchain networks do not constitute securities offerings under federal law. This guidance, which is not legally binding but indicates Corp Fin’s views, represents a significant development for the digital asset industry, providing welcome regulatory clarity around staking arrangements and marking another example of the SEC’s shift towards establishing clearer regulatory guardrails for blockchain industry participants.
Understanding Protocol Staking
PoS blockchain networks use a consensus mechanism where participants "stake" (lock up) the network’s native crypto assets to become eligible to validate transactions and create new blocks, with validator nodes selected based on factors like the amount staked and network rules. Placing value at risk helps buttress cryptographic techniques to ensure validators will not forge or tamper with the transactions they are meant to validate.
In exchange for providing validation services and securing the network, validators earn rewards in the form of additional crypto assets, creating an economic incentive for network participation and security. Many PoS networks also allow token holders to "delegate" their assets to existing validators or "nominate" validators to stake on their behalf, enabling broader participation in staking rewards without requiring participants to operate their own validator infrastructure.
The statement focuses on staking activities involving "covered crypto assets"—crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network and used for consensus participation or network security. Importantly, the guidance only covers assets that do not have "intrinsic economic properties or rights, such as generating a passive yield or conveying rights to future income, profits, or assets of a business enterprise."
SEC Staff’s Legal Analysis of Protocol Staking
The statement relies on the test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946), to assess whether staking arrangements constitute "investment contracts." Under the Howey Test, an investment contract security is formed if there is an investment of money in a common enterprise with the expectation of profits derived from the entrepreneurial or managerial efforts of others.
Corp Fin’s analysis centers on the last Howey element, concluding that protocol staking activities involve only "administrative or ministerial" activities rather than "entrepreneurial or managerial efforts." This distinction, rooted in decades of federal court precedent, proves dispositive across all covered staking models:
- Self- (Solo) Staking: Node operators staking their own assets to earn rewards are not reliant on the entrepreneurial or managerial efforts of others. Rather, they contribute their own resources and perform administrative activities to secure the network and facilitate operations according to protocol rules.
- Self-Custodial Staking Directly with a Third Party: When asset owners grant validation rights to node operators while retaining control of their assets and private keys, the node operator’s service remains administrative in nature. The nature of the staking activity does not change regardless of whether the node operator stakes their own assets or is granted validation rights from others.
- Custodial Arrangements: When custodians stake assets on behalf of owners, they act merely as agents without making entrepreneurial or managerial decisions. The custodian doesn’t decide whether, when, or how much to stake, and the deposited assets are held solely for staking purposes—not used for operational purposes, lending, pledging, or rehypothecation.
Ancillary Services
The statement also addresses four categories of "ancillary services" that service providers may offer in connection with protocol staking, all of which Corp Fin views as administrative rather than entrepreneurial:
- Slashing Coverage: Protection against validator errors, similar to service guarantees in traditional commercial transactions
- Early Unbonding: Convenience service that effectively shortens the protocol’s unbonding periods
- Alternative Reward Schedules: Administrative convenience in reward delivery timing and frequency, provided rewards are not fixed, guaranteed, or exceed protocol amounts
- Asset Aggregation: Helping users meet minimum staking thresholds through pooling
Whether offered separately or as a group, these services remain administrative in nature and do not constitute managerial or entrepreneurial efforts under the Howey analysis.
What’s Not Covered
The Statement explicitly excludes several staking variations that represent substantial portions of the current staking market:
- Liquid staking, restaking, or liquid restaking protocols
- Assets with intrinsic economic properties that generate passive yield or convey rights to future income or profits
- Discretionary staking decisions by custodians about whether, when, or how much to stake
These exclusions are significant given the popularity of liquid staking tokens and emerging restaking protocols, which will require separate regulatory analysis.
Business Implications and Practical Considerations
- Validation of Existing Models: The guidance provides substantial validation for many current staking service providers, confirming that their business models generally don’t trigger securities registration requirements when operated within the described parameters.
- Custodial Service Parameters: The Statement establishes clear boundaries for custodial staking arrangements, emphasizing that custodians must act as agents rather than making discretionary investment decisions. Custodial arrangements should clearly document the limited agency role and ensure assets are held solely for staking purposes.
- Service Provider Clarity: Node operators, validators, and other service providers providing merely technical and operational services will be viewed as engaged in administrative rather than investment management activities, provided they do not guarantee rewards or exercise discretion over staking decisions.
- Documentation Considerations: While not explicitly required, the guidance suggests that clear documentation of the administrative nature of services, asset ownership terms, and limited custodian roles may be beneficial for demonstrating compliance with the framework.
What’s Next?
Corp Fin’s statement articulates a staff position and does not carry legal force or bind the full commission, but it reflects a current interpretive stance likely to influence enforcement decisions. The guidance continues Corp Fin’s recent trend of providing clarity on crypto asset activities, following similar statements on proof-of-work mining, stablecoins, and registered offerings.
- Immediate Actions: Participants in the digital asset ecosystem should carefully assess whether their protocol staking models align with the factual circumstances described in the statement. Activities that go beyond ministerial support should be carefully assessed under the Howey Test and other applicable law.
- Ongoing Monitoring: Companies involved in liquid staking, restaking, or other excluded activities should closely monitor for additional guidance. Given the rapid evolution of staking derivatives and the explicit exclusions in this statement, further regulatory clarity in these areas would be particularly valuable.
- Broader Regulatory Context: Market participants should expect continued evolution in crypto regulation as the SEC Crypto Task Force develops comprehensive frameworks for digital assets. This guidance also reflects ongoing coordination efforts, though state and other federal regulations may still apply to staking activities.
- Legal Review Recommended: Corp Fin notes its view "is not dispositive" and that "a definitive determination requires analyzing the facts relating to the specific Protocol Staking Activity." Companies should consider legal review of their particular arrangements to ensure alignment with the framework.
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*Summer associate Aditya Sivakumar contributed to this alert