On May 29, 2025, the Division of Corporation Finance of the US Securities and Exchange Commission (SEC) issued a statement clarifying its views on the application of federal securities laws to certain proof-of-stake (PoS) blockchain protocol staking activities. The statement specifically addresses the federal regulatory treatment of staking activities for crypto assets that are integral to the operation and security of public, permissionless PoS networks, referred to as “Covered Crypto Assets.”
Overview of protocol staking
Protocol staking refers to the process by which owners of Covered Crypto Assets participate in the consensus mechanism of a PoS network – essentially, the method by which a decentralized ledger maintains a single, uniform record of transactions. By “staking” their assets, users effectively provide collateral to ensure that new transactions will be validated and added to the ledger correctly. Staking thereby contributes to the PoS network’s security and operation. In exchange, participants may earn rewards in the form of newly minted crypto assets or a share of transaction fees, as determined by the network’s underlying software protocol. The Division’s statement distinguishes between three primary forms of protocol staking:
- Self (or solo) staking: The asset owner operates a “node” – a computer dedicated to validating new transactions on the PoS network – and stakes their own assets, maintaining full control and ownership throughout the process.
- Self-custodial staking with a third party: The asset owner delegates validation rights to a third-party node operator, but retains ownership and control of the assets and private keys.
- Custodial staking: A custodian takes custody of the assets and stakes them on behalf of the owner, with the custodian acting as an agent and the owner retaining beneficial ownership. As defined in the Division’s statement, the custodian’s only decision in the staking process is which node to stake the assets with, whether that is the custodian’s node or a third party’s.
Legal analysis under federal securities laws
The Division’s analysis focuses on whether protocol staking activities constitute an “investment contract” under the test established in SEC v. W.J. Howey Co. The Howey test requires: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, and (4) to be derived from the entrepreneurial or managerial efforts of others.
According to the Division, protocol staking activities, as described, do not satisfy the “efforts of others” prong of the Howey test. Specifically:
- Self (or solo) staking: Node operators earn rewards through their own resources and actions in validating network transactions, not through the entrepreneurial or managerial efforts of others.
- Self-custodial staking with a third party: The third-party node operator’s role is limited to administrative or ministerial services, and does not rise to the level of entrepreneurial or managerial activity required under Howey.
- Custodial staking: The custodian’s activities are similarly administrative or ministerial, such as holding assets and selecting a node to stake the assets with, and do not involve managerial or entrepreneurial efforts. The custodian does not guarantee or set the amount of rewards, which are determined by the protocol.
The Division’s conclusions regarding third-party and custodial staking are particularly notable as rewards from these types of staking often require a greater degree of effort from third parties. Asset owners frequently rely on the third party or custodian to, for example, pool their assets, distribute rewards, and reliably operate sophisticated computer hardware. The latter is particularly important, because staked assets may be lost as a penalty for failing to appropriately validate transactions, an event known as “slashing.”
The Division’s statement goes a step further, however, to conclude that certain “ancillary services” – such as indemnity coverage against slashing, early “unbonding” (ie, permitting withdrawals before the protocol would otherwise allow), alternate reward payment schedules, and aggregation of assets to meet staking minimums – are also administrative or ministerial in nature and do not alter the analysis. While these ancillary services may be administrative or ministerial, the earlier statement that a custodian’s selection of a node must be its “only decision in the staking process” suggests that a custodial staking service that makes further discretionary decisions, such as whether to invest custodied assets in liquidity pools or lending protocols, for example, may still constitute a securities transaction in the SEC’s view.
In her own published statement, Commissioner Hester Peirce, who leads the SEC’s Crypto Task Force, called the statement “welcome clarity for stakers and ‘staking-as-a-service’ providers in the United States.”
Scope and limitations
The Division’s view is limited to protocol staking activities involving Covered Crypto Assets that do not have intrinsic economic properties or rights such as passive yield, or claims to future income, profits, or assets of a business enterprise. The statement does not address other forms of staking, such as “liquid staking,” “restaking,” or “liquid restaking.” Like several other recent Division statements – including the stablecoin guidance covered in our April issue, or the meme coin guidance covered in our March issue – this statement does not constitute a rule, regulation, or binding guidance of the SEC. The Division notes that its analysis is fact-specific, and different facts may yield different conclusions.
Conflicting authority
Following the Division’s statement, SEC Commissioner Caroline Crenshaw published a response criticizing the SEC’s departure from its position in multiple enforcement actions before federal courts. For instance, in the SEC’s lawsuit against crypto exchange Kraken, the Commission alleged that Kraken’s “staking services” – effectively the same as the “custodial services” described above – constituted an investment contract offered in violation of federal securities law. As we covered in our February 2023 issue, Kraken agreed to pay $30 million to settle these charges. Commissioner Crenshaw noted that in other cases, where SEC asserted the same theory, federal courts denied motions to dismiss. As a result, federal case law continues to support that certain custodial staking services can constitute securities transactions under the Howey test. Particularly in the wake of Loper Bright, courts need not defer to the interpretation expressed in the Division’s recent statement. Only an act of Congress or a higher federal court decision could override case law the SEC established under the prior administration. Such case law remains available to private plaintiffs or a future SEC administration.
Beyond criticizing the Division’s approach, Commissioner Crenshaw further suggested that certain staking services should be treated as securities offerings. Staking custodians, she notes, are not subject to the same requirements as securities custodians designed to protect investors who provide their assets in case of bankruptcy or losses from hacking or a blockchain failure, for example. Accordingly, Commissioner Crenshaw questioned whether the Division’s statement would “promote clarity” as intended, or rather “sow uncertainty around what the law is and what parts of it the Commission is willing to enforce.”
In addition to existing federal law, some state securities law may also conflict with the Division’s statement. Several state securities regulators have pursued enforcement actions against staking-as-a-service providers, alleging that these services constitute unregistered securities transactions, including California, Maryland, New Jersey, South Carolina, Wisconsin, and New York. While South Carolina voluntarily dismissed its case in March this year, cease and desist orders in other states remain effective.
Practical implications
The Division’s statement is the latest policy position aimed at clarifying the application of federal securities law to crypto asset activities, which might be considered “low hanging fruit” for their relatively low risk despite features that arguably fall within Howey. The statement suggests that participants in protocol staking activities as described – whether as node operators, custodians, or service providers – are not engaging in the offer and sale of securities under the Securities Act of 1933 or the Securities Exchange Act of 1934. Accordingly, registration of these transactions under the Securities Act may not be required.
While the statement reduces the risk of SEC enforcement action against covered staking activities, participants are encouraged to assess their compliance with other regulatory regimes that may apply, such as anti-money laundering or state money transmission laws. In addition, as discussed above, staking participants may still face securities law enforcement from private plaintiffs or state regulators who can, and have, taken positions contrary to the Division’s statement.
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