PoS staking freed from regulatory constraints, U.S. SEC states these three activities do not constitute securities transactions
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PoS staking freed from regulatory constraints, U.S. SEC states these three activities do not constitute securities transactions
This statement aims to provide regulatory clarity for staking participants and support compliant participation in network consensus mechanisms.
Navigating Web3 tides with focused insightsAuthor: U.S. SEC
Translation: Felix, PANews
The U.S. Securities and Exchange Commission (SEC) today issued a policy statement on staking activities in Proof-of-Stake (PoS) networks, clearly stating that three types of staking activities do not constitute securities offerings: self-staking, non-custodial third-party staking, and compliant custodial staking. This statement aims to provide regulatory clarity for staking participants and support compliant participation in network consensus mechanisms.
Below is the full text of the statement:
Introduction
To provide greater clarity regarding the application of federal securities laws to digital assets, the Division of Corporation Finance offers its views on certain activities referred to as “staking” on networks that use proof-of-stake (“PoS”) as their consensus mechanism (“PoS Networks”). Specifically, this statement addresses staking of digital assets on public, permissionless networks that are inherently tied to the programmatic operation of such networks—digital assets used to participate in, or received as compensation for participation in, the consensus mechanism of such networks, or used to maintain, or received as compensation for maintaining, the technical operations and security of such networks. In this statement, we refer to these digital assets as “Covered Crypto Assets” and staking of such assets on PoS Networks as “Protocol Staking.”
Protocol Staking
Networks rely on cryptography and economic mechanism design to reduce dependence on designated trusted intermediaries for validating transactions and providing settlement assurances to users. Each network is governed by an underlying software protocol composed of computer code that programmatically enforces certain network rules, technical requirements, and reward distributions. Each protocol includes a “consensus mechanism,” a method enabling unrelated computers maintaining the peer-to-peer network (called “nodes”) to form a distributed network capable of reaching agreement on the network’s “state”—the authoritative record of account balances, transactions, smart contract code, and other data. Public, permissionless networks allow users to participate in network operations, including validating new transactions according to the network’s consensus mechanism.
Proof-of-Stake (PoS) is a consensus mechanism designed to ensure node operators participating in the network contribute value, with those contributions subject to forfeiture in certain cases if operators behave dishonestly. In PoS networks, node operators must stake Covered Crypto Assets associated with the network to be programmatically selected by the network’s underlying software protocol to validate new blocks and update the network state. Once selected, a node operator assumes the role of a “validator.” In return for providing validation services, validators receive two forms of “rewards”: (1) newly minted (or created) Covered Crypto Assets allocated to validators through the network’s underlying software protocol; and (2) a portion of transaction fees paid by parties seeking to include transactions on the network, denominated in Covered Crypto Assets.
In PoS networks, node operators must commit or “stake” Covered Crypto Assets to qualify for validation and earn rewards, typically implemented via smart contracts. A smart contract is an automated program that executes required operations for network transactions. During the staking period, Covered Crypto Assets are “locked” and cannot be transferred for the duration specified by the applicable protocol. Validators do not possess or control the staked crypto assets, meaning ownership and control of the staked assets remain unchanged during staking.
The underlying software protocol of each PoS Network contains rules governing and maintaining that PoS Network, including methods for selecting validators among node operators. Some protocols randomly select validators, while others apply specific criteria, such as the amount of crypto assets staked by a node operator. Protocols may also include rules intended to deter activities harmful to network security and integrity, such as validating invalid blocks or double-signing (which occurs when a validator attempts to add the same transaction to the network more than once).
Rewards from Protocol Staking provide economic incentives for participants to secure PoS Networks using their Covered Crypto Assets and ensure continued operation. An increase in the number of Covered Crypto Assets staked can enhance the security of a PoS Network and reduce the risk of an attacker controlling a majority of staked assets. If improperly controlled, an attacker could manipulate the PoS Network by influencing transaction validation or altering transaction records.
Users holding Covered Crypto Assets can earn rewards by serving as node operators and staking their own assets. In self-(or solo-)staking, users retain ownership and control over their crypto assets and private keys at all times.
Alternatively, users holding Covered Crypto Assets can participate in the validation process of PoS Networks directly through non-custodial third-party staking without running their own nodes. Holders of crypto assets delegate their right to validate to third-party node operators. When using third-party node operators, users receive a portion of the rewards, while service providers receive a share for their services in validating transactions. In direct non-custodial staking through third parties, holders retain ownership and control of their crypto assets and private keys.
Besides self-(or solo-)staking and direct non-custodial staking through third parties, a third form of Protocol Staking is so-called “custodial” staking, where a third party (“custodian”) holds the owner’s crypto assets and facilitates staking on behalf of the owner. When owners deposit crypto assets with a custodian, the custodian stores the deposited assets in a digital wallet under the custodian’s control. The custodian stakes the assets on behalf of the owner to earn an agreed-upon share of rewards, either through nodes operated by the custodian or via third-party node operators selected by the custodian. Throughout the staking process, the deposited assets remain under the custodian’s control, while the asset owner retains ownership of the crypto assets. Additionally, the deposited assets: (1) must not be used for the custodian’s operations or general business purposes; (2) must not be loaned, pledged, or re-pledged under any circumstances; and (3) must be held in a manner that does not expose them to third-party claims. Accordingly, custodians must not use deposited assets for leveraged activities, trading, speculation, or similar purposes.
Division’s View on Protocol Staking Activities
The Division believes that “Protocol Staking Activities” related to Protocol Staking do not involve the offer and sale of a “security” as defined in Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). Therefore, the Division believes that parties engaging in Protocol Staking Activities need not register transactions related to these activities with the Commission under the Securities Act, nor are they subject to the conditions and limitations applicable to exemptions from registration under the Securities Act.
Protocol Staking Activities Covered by This Statement
The Division’s view applies to the following Protocol Staking Activities and transactions:
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