SEC Issues Guidance on Protocol Staking for Crypto Assets
On Thursday, May 29, 2025, the U.S. Securities and Exchange Commission’s Division of Corporation Finance issued a statement clarifying the application of federal securities laws to certain activities related to cryptocurrency staking, specifically on networks utilizing proof-of-stake (PoS) mechanisms. The statement aims to provide clearer guidance regarding the staking of crypto assets that are essential for the operation of public, permissionless networks, which the SEC refers to as “Covered Crypto Assets.”
The statement focuses on “Protocol Staking,” a process where participants validate transactions and secure the network by staking their crypto assets. In PoS Networks, Node Operators must stake these Covered Crypto Assets to be selected programmatically for validating new blocks and maintaining the network’s state. Validators earn rewards for their services, which comprise newly minted Covered Crypto Assets and a portion of transaction fees.
The SEC recognizes that in PoS Networks, staking involves locking up assets for a specified period under the network’s protocol. During this time, the assets cannot be transferred, and ownership remains unchanged despite the staking process. The statement elaborates on how different protocols handle the selection of Validators, either through random selection or based on the number of assets staked.
The SEC asserts that the rewards from Protocol Staking serve as an economic incentive for participants to secure the network, thereby enhancing its security. The agency emphasizes that an increase in staked assets can mitigate risks associated with potential control by hostile parties.
Participants in the staking process can either self-stake their Covered Crypto Assets or use third-party services. Self-staking allows asset owners to maintain full control of their assets while earning rewards. Alternatively, they may opt for self-custodial staking, where they grant validation rights to a third-party Node Operator while retaining ownership and control of their crypto assets.
The third option presented is custodial staking, where a third party, referred to as a Custodian, takes custody of the assets and facilitates the staking process on behalf of the owner. The Custodian holds the assets in a controlled digital wallet and stakes them while ensuring that the assets remain unutilized for operational purposes.
The SEC’s Division maintains that Protocol Staking Activities do not constitute the offer and sale of securities under the Securities Act of 1933 or the Securities Exchange Act of 1934. As a result, participants in these activities are not required to register their transactions with the SEC, nor do they fall within any exemptions for registration.
The statement defines Protocol Staking Activities to include staking Covered Crypto Assets on PoS Networks, the roles of third-party service providers in the staking process, and the provision of ancillary services. It specifies that self-staking, self-custodial staking with third parties, and custodial arrangements are the three defined methods of participation.
In evaluating whether Covered Crypto Assets could be classified as securities, the SEC referenced the “Howey Test,” which assesses whether an investment is dependent on the efforts of others. The Division concluded that neither self-staking nor self-custodial staking involves an expectation of profits derived from the efforts of third parties, as the activities are deemed administrative or ministerial.
Custodial arrangements were also deemed not to meet the criteria for managerial or entrepreneurial efforts, reinforcing the SEC’s view that these staking activities do not fall under the definition of securities. The statement further describes several ancillary services that may be offered by service providers, all of which are characterized as administrative in nature.
Overall, the SEC’s statement aims to provide clarity and guidance for participants in the evolving landscape of cryptocurrency staking, ensuring that stakeholders understand their legal obligations under federal securities laws.
