SEC Confirms Liquid Staking Tokens Are Not Securities
The U.S. Securities and Exchange Commission (SEC) has issued a definitive statement confirming that liquid staking tokens, used in decentralized finance (DeFi), do not qualify as securities like stocks or bonds. This guidance comes amid the SEC’s ongoing efforts to clarify the legal status of various cryptocurrency-related activities.
Focus on Staking Receipts
In a statement released on Tuesday, the SEC clarified its view, stating that liquid staking providers are not engaged in securities transactions because their function is administrative, not involving managerial or entrepreneurial activities. Furthermore, the tokens themselves are classified as “staking receipt tokens,” describing them as functioning much like IOUs given to depositors who lend their crypto assets for staking purposes.
“The Liquid Staking Provider does not decide whether, when, or how much of a depositor’s [crypto] to stake and is simply acting as an agent,” the statement reads.
Market Context
Liquid staking is a cornerstone of the $66 billion+ DeFi market. Leading platforms like Lido Finance command a substantial share, holding over $31.6 billion in deposits as of Tuesday. The new SEC view aligns with arguments previously made by the industry.
Project Crypto and New Direction
The statement is significant in the context of “Project Crypto,” announced by new SEC Chair Paul Atkins. This initiative aims for regulatory certainty to facilitate the integration of traditional finance with blockchain technology and unlock new applications.
Last week, Atkins lauded the Project Crypto initiative, stating that the guidance is already yielding results and benefiting the American public.
Shift from Gensler Era
This marks a considerable departure from the SEC’s approach under former Chair Gary Gensler (2021-2023). Gensler frequently characterized most cryptocurrencies as securities and pursued numerous enforcement actions against the industry, including a case against MetaMask developer Consensys and another alleging unregistered securities sales related to liquid staking protocols.
Atkins administration further signaled this shift by dropping previously filed SEC lawsuits against MetaMask and EigenLayer.
Defining the Scope
The SEC’s criteria specify that these tokens are not securities provided they simply represent debt or IOUs, not rights to future income. However, preliminary transactions on restaking protocols like EigenLayer and transactions conferring equity-like rights remain scrutinized.
What is Liquid Staking?
Most major blockchains use proof-of-stake consensus, requiring users to lock crypto assets to secure the network and earn rewards. Liquid staking protocols streamline this by staking assets on behalf of users and minting liquid tokens (receipts) as proof of the staked position. These tokens can be used as collateral in other DeFi applications, addressing the opportunity cost of locked assets that existed under traditional proof-of-stake systems.
