- An SEC statement declares that liquid staking activities do not constitute securities.
- The statement from the Commission’s Division of Corporation Finance clears the uncertainty over a crucial aspect of decentralized finance.
- SEC Chair Paul Atkins says his administration is committed to providing clarity on the application of securities laws to financial activities and emerging technologies.
The US Securities and Exchange Commission has issued a statement exempting liquid staking activities from securities. The statement, according to the Commission, was intended to provide clarity in a way that streamlines crypto asset activities under its oversight.
Liquid Staking Does Not Constitute Securities
By ruling out liquid staking from the securities status, the Commission has equally exempted the activity from its jurisdiction. Liquid staking is a DeFi term that implies staking crypto assets via a platform or protocol and receiving a liquid staking token representing your staked assets and your participation rewards.
“Accordingly, it is the Division’s view that participants in Liquid Staking Activities do not need to register with the Commission transactions under the Securities Act, or fall within one of the Securities Act’s exemptions from registration in connection with these Liquid Staking Activities,” said the SEC.
Based on the statement, Liquid Staking Providers who mint, issue, and redeem Staking Receipt Tokens do not need to register with the Commission to perform such activities.
Likewise, those involved in the offer and sales of Staking Receipt Tokens in secondary markets or exchanges will not be required to register under the SEC, “unless the deposited Covered Crypto Assets are part of or subject to an investment contract.”
Liquid Staking Activities Don’t Satisfy Howey’s
The SEC found that liquid staking doesn’t satisfy the elements of the Howey Test, since the liquid staking provider “does not provide entrepreneurial or managerial efforts” to the depositors for whom it provides the service.
Furthermore, the Liquid Staking Provider does not determine “whether, when, or how much” of a participant’s Covered Crypto Asset they should stake. Instead, they only act as agents connecting the depositor to stake their assets.
Also, the Commission concludes that the liquid staking providers’ custody of deposited Covered Crypto Assets without a node operator does not satisfy Howey’s, because the activities are “administrative or ministerial” in nature.
Staking Receipt Tokens Are Not Securities
First, the SEC excludes Staking Receipt Tokens from securities because they are not among the the financial instruments in relevent sections of the Securities and Exchange Acts recognized as securities, namely; “stock,” “note,” and “bond.”
As a general principle, if a covered or staked crypto asset is not a security, then the Staking Receipt Token is not a receipt for a security and does not constitute a security. By Howey’s and all applicable tests, the Commission concludes that receipt tokens in the context of the statement are not offered and sold as part of an investment contract.
“Under my leadership, said Chair Atkins, the SEC is committed to providing clear guidance on the application of the federal securities laws to emerging technologies and financial activities.”
According to Atkins, the staff statement on liquid staking is a “significant step forward” towards spelling out the staff’s view on crypto asset activities that are outside the Commission’s regulatory oversight. Crypto market actors praise the current SEC’s strides towards clarity and undoing the effects of previous years of unclear and enforcement-centered regulation.
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