Commissioner Crenshaw said the position doesn’t square with court rulings on staking in light of Howey. - 01 June 2025

The SEC’s Division of Corporation Finance clarified its position on protocol staking, stating that these activities do not involve an offer or sale of securities and thus do not require registration (or an exemption from registration). Protocol staking involves locking up crypto assets to earn rewards. While Commissioner Hester Peirce said that the statement “provides welcome clarity,” Commissioner Caroline Crenshaw said it “paint[s] an incomplete picture that obfuscates, rather than clarifies, what the law is.

CorpFin analysis. The CorpFin statement applies to self (solo) staking, self-custodial staking directly with a third party, and custodial arrangements. It carves out the following staking activities:

• Staking covered assets on networks that use proof-of-stake as a consensus mechanism;
• The activities undertaken by third parties involved in the protocol staking process, including in connection with the earning and distribution of rewards; and
• Providing the ancillary services of slashing coverage, early unbonding, alternate rewards payment schedules and amounts, and aggregation of covered crypto assets.

The staff explained that it conducted its analysis under the “investment contract” test of SEC v. W.J. Howey Co., 328 U.S. 293 (1946). In particular, the statement focuses on Howey’s “efforts of others” requirement, noting that administrative and ministerial activities are not the type of essential managerial or entrepreneurial efforts that affect the failure or success of the investment.

In the case of self, or solo, staking, the node operator is not expecting profits from the efforts of others. Rather, they contribute their own resources and stake their own assets. Likewise, in the case of self-custodial staking directly with a third party, that is, when an asset owner grants validation rights to the node operator, the asset owner does not expect profits from the entrepreneurial or managerial efforts of others. Protocol staking in both these cases remains an administrative or ministerial activity, with the financial incentive derived solely from this activity and not the success of the proof-of-stake network or another third party.

Finally, in a custodial arrangement, the custodian does not provide entrepreneurial or managerial efforts to crypto asset owners. The custodian does not decide whether, when, or how much of the owners’ assets to stake (if it does, its activities fall outside the scope of the statement) but merely acts as an agent in connection with staking the deposited assets on behalf of the owners. The fact that a custodian may take custody of assets and select a node operator does not satisfy the “efforts of others” requirement because these activities are administrative or ministerial in nature, not managerial or entrepreneurial.

Peirce statement. Noting that “providing security is not a ‘Security,’” Peirce said that the statement “provides welcome clarity for stakers and ‘staking-as-a-service’ providers.” The commissioner, who heads the Crypto Task Force, noted that CorpFin had previously clarified that certain proof-of-work mining activities are not securities transactions. She expects “that the Division and Crypto Task Force will continue to develop views about security status for other activities, products, and services involving participation in network consensus.”

Crenshaw statement. Crenshaw does not agree that the statement is clarifying. She said that it follows the SEC’s “fake it ‘till we make it” approach of taking action based on anticipation of future changes to the regulatory framework for crypto while ignoring existing law. “Rather than promote clarity, this approach continues to sow uncertainty around what the law is and what parts of it the Commission is willing to enforce, which is bad for investors and the markets,” Crenshaw wrote.

Two courts have upheld the legal basis of SEC arguments that staking-as-a-service programs were investment contracts under Howey. Although the SEC has dismissed these enforcement actions, that does not affect the underlying court decisions.

Notably, Crenshaw said, courts have ruled that staking services enhanced profit potential beyond what customers could get from staking on their own through the ability to pool investor assets and provide technical infrastructure and expertise. Contrary to this precedent, CorpFin concluded that pooling and other features are ancillary services that are not relevant to the Howey test.

Crenshaw allows that Howey is a facts-and-circumstances test that may not reach certain bare-bones staking programs. “It could be useful for the staff to analyze common staking program features (consistent with existing law) and explain why they do or do not constitute managerial efforts,” she said. “But unfortunately, as with the Division’s other recent Howey statements, the conclusions here are vague generalizations that cannot readily be mapped onto real-world services.”

The commissioner also objected to the Division’s carving out staking programs from the securities laws while using terminology like “custodian” that implies the protection of a regulatory framework. Similarly, the statement describes an investor whose crypto is locked up in a staking protocol as retaining “ownership” of the staked assets, yet there is no legal framework to protect investors who turn over their crypto to a staking service.

© 2025 CCH Incorporated and its affiliates and licensors. All rights reserved.