Clear regulatory guidance on crypto staking has been urged by a coalition of US Blockchain firms to the Securities and Exchange Commission (SEC).
It is warned by the Council that overly strict staking regulations could hinder innovation and obstruct market growth.
In an open letter dated April 30, the Crypto Council for Innovation led a coalition requesting that the SEC apply the same clarity to staking that was recently applied to proof-of-work mining.
Staked Tokens Do Not Qualify as Securities
It was argued by the Council that staking is a fundamental technical process used to maintain blockchain networks, rather than an investment contract.
It stated:
The benefits of staking to a PoS network and its participants are clear: base layer actors are incentivized to contribute to the security of the network, minimize the risk of manipulative activity, ensure data integrity, and bolster community trust in the network.
It was stressed that staking enables users to validate transactions, secure the network, and contribute to the production of new blocks. In return, rewards in the form of tokens are received by participants. These rewards are determined by the protocol of each network, rather than by a centralized authority or profit-sharing arrangement.
It was emphasized that through staking, transactions are validated, the network is secured, and new blocks are produced. In exchange, token-based rewards are given to participants. These rewards are governed by each network’s protocol, rather than being decided by a centralized entity or a profit-sharing structure.
It was asserted by the Council that this rationale should extend to staking as well, since both miners and stakers perform administrative tasks to maintain blockchain infrastructure and are rewarded based on the protocol’s definitions.
Meanwhile, it was acknowledged in the letter that certain risks exist, including the potential for slashing, where tokens are lost by stakers for breaching protocol rules.
However, it was noted that slashing is rare and does not define staking’s economic model. Therefore, it is maintained by the Council that staking should not be classified under securities laws.
The Case for Regulatory Clarity
It is believed by the Crypto Council that formal guidance from the SEC would benefit many stakeholders, including developers, service providers, and end-users.
It was argued by them that such clarity would eliminate uncertainties for platforms offering staking, particularly those linked to crypto exchange-traded funds (ETFs).
It was further stressed by the Council that regulatory clarity would aid the US in maintaining competitiveness with other global jurisdictions, which are progressing more swiftly to foster innovation in the digital asset space.
However, caution was expressed against overly strict regulations that could stifle innovation or perpetuate outdated market practices.
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