The recent guidance from the US Securities and Exchange Commission (SEC) regarding liquid staking has sparked significant dissent among its commissioners. This guidance, issued by the Division of Corporation Finance, asserts that certain forms of liquid staking do not qualify as securities transactions and are therefore exempt from federal registration requirements.
Liquid staking enables cryptocurrency holders to earn staking rewards while retaining the liquidity of their assets through receipt tokens. The SEC staff argued that the activities involved do not require entrepreneurial or managerial engagement from the providers, which means they do not fulfil the criteria for investment contracts under the Howey Test. Essentially, the tokens in question serve solely as proof of ownership for the staked assets and the rewards associated with them.
Commissioner Hester Peirce publicly endorsed this interpretation, comparing liquid staking to a conventional arrangement where assets are deposited with an agent who issues receipts. Peirce commented, “Today’s statement clarifies the Division’s view that liquid staking activities in connection with protocol staking do not involve the offer and sale of securities.”
Conversely, Commissioner Caroline Crenshaw has vehemently opposed the guidance. In her statements, she decried it as “legally unfounded” and predominantly disconnected from real-world scenarios. Crenshaw argued that the conclusions drawn are overly simplistic, based on unverifiable assumptions that may not accurately represent the operations of staking providers. She described the SEC’s position as “a wobbly wall of facts without an anchor in industry reality,” emphasising her belief that it introduces confusion rather than clarity.
Furthermore, Crenshaw posited that the guidance lacks legal authority and fails to provide substantial clarity, especially for crypto entities whose operations may differ from the assumptions made by the SEC. This internal conflict within the SEC highlights the broad divisions as the organisation seeks to adapt to the rapidly changing landscape of cryptocurrency regulation.
In summary, while the SEC’s guidance on liquid staking aims to exclude certain activities from being classified as securities transactions, it has ignited a contentious debate among its commissioners about the implications and accuracy of such legal interpretations in the dynamic world of digital finance.
