A request for legal clarity on crypto staking has been made by a group of nearly 30 crypto advocacy organizations, which argue that staking should not be classified as an investment activity, according to the SEC.
Clear regulatory guidance on crypto staking and staking services has been requested from the Securities and Exchange Commission by nearly 30 crypto advocacy groups, with the Crypto Council for Innovation (CCI) leading the effort.
In an April 30 letter to the SEC’s Crypto Task Force lead, Commissioner Hester Peirce, the CCI’s Proof of Stake Alliance (POSA) group argued that staking is fundamentally a technical process rather than an investment activity.
It was stated in the letter that staking is not niche but rather the backbone of the decentralized internet.
The letter was written in response to the SEC’s request for public input on whether staking and liquid staking, where tokens are locked to earn additional rewards, should be regulated under federal securities laws.
The coalition urged the SEC to support the responsible inclusion of staking features in exchange-traded products (ETPs) and to “avoid overly prescriptive rules that could freeze market structures and stifle innovation in the staking space.”
It was argued by the group that staking does not meet the Howey test definition of an “investment contract” as the ownership of assets is retained by the stakers.
It was added that rewards are determined by blockchain protocols, not the efforts of a staking provider, and that profits are not delivered through managerial decisions like they are in a company.
It was requested that principles-based guidance, similar to recent SEC staff statements on proof-of-work mining, be issued by the SEC.
It was stated by the group that more movement and constructive dialogue with the SEC had been seen in the past 4 months than in the previous 4 years. “Now, concrete principles to include in guidance are being presented by the industry — reflecting this new collaborative approach,” they added.
It was argued by the group that the existing securities disclosure regime is not well-suited for staking services, as they are fundamentally technical rather than financial in nature.
Several high-profile crypto organizations and companies, including the venture capital firm Andreessen Horowitz (a16z), blockchain software firm Consensys, and the crypto exchange Kraken, which restored staking services in the US earlier this year, are included in the Proof of Stake Alliance.
A decision on the approval of a crypto staking exchange-traded fund (ETF) has yet to be made by the SEC, and the decision on allowing staking for Grayscale’s spot Ether ETF was delayed on April 14.
In April, a prediction was made by Bloomberg ETF analyst James Seyffart that an Ether ETF including staking could be launched as early as May.
