SEC’s Protocol Staking Clarification: Legal Insights for Institutional Engagement
On May 29, 2025, the SEC’s Division of Corporation Finance issued a landmark statement clarifying the regulatory treatment of certain protocol staking activities under U.S. securities laws, marking a shift from “regulation by enforcement.” The SEC concluded that standard staking models, when structured appropriately, do not constitute an offer or sale of securities. We believe this guidance unequivocally favours staking providers like us, who focus on delivering core staking services and permissible ancillary features, and removes a significant legal barrier that had previously deterred institutional involvement in proof-of-stake (PoS) networks.
Key Legal Insights
The act of using crypto assets in protocol-level staking (to validate blockchain transactions and secure the network) does not, in itself, constitute an offer or sale of a security. These activities are deemed “administrative or ministerial” rather than investment schemes, meaning they do not fit within the traditional definitions of securities such as stocks or bonds. The SEC’s analysis hinges on the Howey test, focusing on whether staking rewards are derived from the entrepreneurial or managerial efforts of others. When rewards are generated solely through a participant’s own validation activities or through protocol-defined processes, this prong is not satisfied. The SEC stated that even when a user delegates tokens to a third-party node operator or uses a custodian for convenience, the role of that service provider is limited to ministerial, automated functions, not active profit-generating management. Importantly, the SEC also noted that crypto assets used in staking do not, by themselves, constitute traditional securities such as stock, bond, or note. This underscores that the legal classification depends on the staking arrangement’s structure, not the nature of the asset.
The SEC recognized three permissible models: self-staking, self-custodial staking with a third-party operator, and custodial staking. In all, participants retain ownership of their assets, and any rewards are generated through protocol operations, not managerial efforts.
The statement also addressed ancillary services such as slashing protection, early unbonding, reward payout flexibility, and stake aggregation, clarifying that these administrative conveniences do not, on their own, transform staking into a securities offering. We see this clarification regarding ancillary services as a catalyst for innovation across the sector, paving the way for the development of new product offerings. While ancillary services may still be subject to oversight under other U.S. legal frameworks, this guidance provides the clarity needed to advance new solutions confidently.
Exclusions and Limits to the Guidance
While the guidance provides significant clarity, it excludes more complex models such as liquid staking, restaking, pooled staking with managerial discretion, guaranteed yield programs, and application-layer “staking” on chains without PoS consensus (such as bitcoin yield generation). We await further clarity from the SEC or other regulators on these areas, as they currently represent a legal and regulatory gray zone for firms operating in these spaces and for institutions considering engagement. Although the statement reflects the SEC’s interpretation and not formal rulemaking, we believe it marks a major advance in clarifying permissible staking activities.
While one Commissioner (Caroline A. Crenshaw) publicly dissented, citing concerns about managerial efforts in certain models, this divergence highlights that the guidance represents a substantial step forward. At the same time, several U.S. states, including California, New Jersey, Maryland, Washington, and Wisconsin, have issued cease-and-desist orders against certain staking services deemed unregistered securities, underscoring continued state-level challenges. Nonetheless, we believe this federal clarification positions the U.S. as a key market to watch, setting the stage for innovation and growth in staking and digital assets as the regulatory landscape continues to evolve.
Conclusion
At Twinstake, we view the SEC’s recent clarification as a pivotal development for the digital assets industry. It provides essential clarity that protocol staking, when structured appropriately, is fundamentally a technical and ministerial activity, not a securities offering. This shift toward clearer regulatory expectations is a positive development that sets the stage for compliant growth and innovation in staking.
In our view, while the SEC’s guidance marks a significant step forward, certain areas, including complex models like liquid staking, restaking, and pooled structures, as well as continued state-level scrutiny and the concerns raised by a dissenting commissioner, underscore the need for further regulatory clarity. We will remain cautious as we navigate this evolving landscape, but we look forward to further engagement and guidance to resolve these issues and unlock the full potential of staking.
Looking ahead, we are closely monitoring the SEC's forthcoming decisions on whether staking can be incorporated into Exchange-Traded Products (ETPs) and Exchange-Traded Funds (ETFs). While uncertainties remain, the recent guidance indicates a positive trajectory, and we are hopeful that future rulings will further support the integration of staking into regulated investment vehicles. As the largest staking provider for European ETFs, we stand ready to support U.S. firms with compliant staking solutions should this path be approved.
In light of this U.S. regulatory momentum, we also anticipate developments in other jurisdictions. In the UK, the Financial Conduct Authority (FCA) is seeking feedback on its approach to cryptoasset regulation, including staking, with responses due by 13 June 2025. This follows the UK government’s confirmation earlier this year that staking services are not considered collective investment schemes, providing initial clarity. While global regulatory approaches may not align perfectly, it is noteworthy that the SEC’s guidance may set a precedent that influences broader regulatory frameworks.
At Twinstake, we remain committed to delivering secure, transparent, and compliant staking solutions that align with evolving regulatory expectations. We are optimistic that continued engagement between regulators and industry participants will foster a comprehensive framework that supports both innovation and investor protection.
Disclaimer: This information is provided for informational purposes only and does not constitute legal, tax, or investment advice. Please consult with your tax, legal, and compliance teams when interpreting SEC guidance for specific use cases.
