The U.S. Securities and Exchange Commission (SEC) has started taking active steps to participate in the crypto-focused regulatory overhaul. As part of its newly launched initiative, Project Crypto, the SEC is starting to refresh the national securities laws to include crypto activities. In its first key announcement, the SEC said that not all crypto staking activities will classify as securities under the newer, friendlier rules.
The SEC said that its Division of Corporation Finance is of opinion that certain liquid staking does not qualify as an “investment contract” — and hence should not fit into an exemption from registration.
SEC explains
Liquid staking lets users stake their crypto holdings in exchange for rewards, trading uses, and loan collaterals. All stakers receive a “liquid staking token (LST)” that represents their positions on most PoS blockchain ecosystem. Through this LST tokens, stakers maintain liquidity while also earning staking rewards.
In its statement, the SEC has referred to the LSTs as “‘liquid staking receipt token’ to evidence the staker’s ownership of the staked crypto assets and any rewards that accrue to them.”
The SEC explained that providers of liquid staking services subsequently oversee multiple activities ranging from holding user assets to distributing the rewards earned. They also facilitate the creation, issuance, and redemption of LSTs, while also having to manage risks.
“The Staking Receipt Token itself does not generate rewards. Rather, rewards are generated from the underlying Protocol Staking Activities, which do not involve securities transactions,” the statement said.
SEC chairperson Paul Atkins described this clarification as a significant step in clarifying the agency’s position on crypto.
“The SEC is committed to providing clear guidance on the application of the federal securities laws to emerging technologies and financial activities. Today’s staff statement is a significant step forward in clarifying the staff’s view about crypto asset activities that do not fall within the SEC’s jurisdiction,” Atkins noted.
Lehman Style Risk Warning
However, former SEC Chief of Staff Amanda Fischer likened liquid staking risks to the “double staking” and rehypothecation practices at Lehman Brothers. She warned that some assets can be repeatedly restaked and reused, amplifying systemic vulnerability without oversight, adding that this could potentially spark a Lehman-style collapse in crypto.
Project Crypto enters in effect
The month of July emerged to be an evenful one with the U.S. congress passed three key crypto bill to establish clear guidelines over the sector. The stablecoin-focussed GENIUS Act was in fact, signed into a law by President Trump on July 18.
Last week, Atkins said that SEC will start revamping it U.S. securities law keeping the crypto sector in focus under “Crypto Project”. Under this initiative, Atkins has directed the SEC to work with the Crypto Task Force to define clearer securities law and reshore crypto businesses that exited in the last few years owing to unclear laws that prevailed under former President Joe Biden.