Positive Regulatory Shift: SEC Embraces Crypto Innovation with Staking Clarity

The regulatory landscape has fundamentally transformed in favor of digital asset innovation. From staking clarity to DeFi exemptions, here's what this seismic shift means for your Web3 business.

SEC Confirms Crypto Staking Activities Are Not Securities

The U.S. Securities and Exchange Commission (“SEC”) has delivered a watershed moment for the cryptocurrency industry. In an unprecedented move, the SEC's Division of Corporation Finance has issued a comprehensive statement confirming that certain proof-of-stake staking activities do not constitute securities offerings under federal law.

This is a fundamental shift that opens doors previously clouded by uncertainty. After years of enforcement actions brought by the SEC against industry participants alleging that staking activities fall within the parameters of the definition of “security” under the federal securities laws, the SEC has drawn clear lines around legitimate staking operations. The Commission's statement addresses three core staking models (“Protocol Staking Activities”):

• Solo Staking: Where crypto asset owners run their own validator nodes and directly stake assets they control.

• Self-Custodial Staking: Where owners retain custody and private keys while delegating validation rights to third-party operators.

• Custodial Arrangements: Where custodians hold customer assets and stake them on behalf of owners without using those assets for other purposes.

The SEC's conclusion? None of these activities meet the definition of investment contracts under the Howey test and as such, US securities registration requirements do not apply.

Why This Changes Everything?

The SEC's analysis centers on a critical legal distinction: staking rewards are generated automatically by blockchain protocols, not through the entrepreneurial or managerial efforts of others. In essence, the fourth prong of the Howey Test (i.e. derived from the entrepreneurial or managerial efforts of others) is not satisfied. Even when third-party operators or custodians are involved, their role is purely operational and administrative—not the kind of discretionary management that triggers securities regulations.

The SEC Statement highlights that in all three types of Protocol Staking Activities:

• Staking rewards depend on automated code, not human decision-making or the managerial efforts of others;

• Asset owners maintain legal ownership throughout the process (e.g. in custodial staking, a third party stakes assets on the owner’s behalf for a share of the rewards but the assets remain under the owner’s legal ownership);

• Custodians act as agents in an administrative capacity only, not as investment managers (i.e. custodians do not “guarantee or otherwise fix the amount of rewards”); and

• Service providers perform ministerial functions, not entrepreneurial activities.

Beyond Basic Staking: Ancillary Services Get the Green Light

The SEC went further, explicitly affirming that additional services that enhance staking operations, as outlined below, are not seen as violating the Howey test:

• Slashing Coverage: Protection against validator penalties

• Early Unbonding: Faster access to staked assets (i.e. allowing staked assets to be returned to the owner prior to the end of protocol’s unbonding period)

• Alternative Reward Schedules: Flexible payout timing

• Asset Aggregation: Pooling of crypto assets to meet a protocol’s minimum staking requirements

Each of these services is deemed "administrative or ministerial in nature" and “does not involve entrepreneurial or managerial efforts”—safely outside securities regulation.

While this guidance is transformative, precision matters. The SEC's favorable position applies specifically to the defined fact patterns. Activities that fall outside these parameters—or tokens with additional profit-bearing features—remain subject to existing securities analysis.

SEC Statement Marks a Sharp Departure From Previous Enforcement Actions

The SEC Statement marks a sharp departure from its prior position on staking. Just two years ago, the SEC was actively pursuing cases against major platforms like Kraken, Binance and Coinbase, alleging their staking programs constituted unregistered securities offerings.

The SEC alleged that the staking programs of Kraken, Binance and Coinbase each offered unregistered securities by emphasizing each platform’s discretionary control over customer assets – arguing that they were not simply facilitating staking, but actively pooling participant funds, managing the staking process, implementing proprietary strategies to maximise returns, and making strategic decisions that directly influenced investor outcomes. The Commission argued that this constituted an “investment contract” requiring registration, particularly since customers surrendered control of their staked assets in exchange for promised returns, with minimal protection.

The key difference? In those earlier cases, the SEC emphasised each platform’s exercise of discretionary control over staking strategies, and the fact that management decisions were involved in the pooling of staked assets to influence customer rewards. The new guidance creates a safe harbor for staking operations that remain purely protocol-driven.

Potential for Change

Although the lawsuits against Binance and Coinbase were eventually dismissed, more than one US federal court has already accepted the argument that staking services could constitute unregistered securities offerings. The SEC’s pivot from established law reflects a divide over the future regulatory approach to staking in Web3 DeFi protocols. For now, we should view the SEC’s position as a helpful but provisional blueprint. Careful attention to regulatory updates and a proactive approach to compliance remain essential.  

How SCG Advisory Can Help?

The regulatory environment for digital assets is evolving rapidly, and staying compliant requires expert guidance. Our team specializes in helping technology providers and crypto startups assess their activities against current regulatory frameworks.

Our team at SCG Advisory is actively assisting clients to:

• Provide regulatory gap assessments to determine whether your activities fall within the narrow definition of Protocol Staking Activities as outlined in the SEC Statement;

• Obtain legal opinions on whether your services qualify for exemption from securities laws;

• Develop compliance strategies for staking operations; and

• Explore strategic restructuring options when beneficial.

Contact us today at contact@synergyconsulting.io for a confidential consultation to ensure your business remains compliant and strategically positioned under the evolving digital asset framework.

Disclaimer: This article is provided for general informational purposes only and should not be construed as legal, tax, investment, or financial advice. It does not create, and is not intended to create, any client-attorney or advisory relationship. The information contained herein is not a substitute for tailored advice from a qualified legal, tax, or financial professional based on your specific circumstances. Readers are strongly advised to seek independent, professional guidance before making any decisions or taking any action based on the contents of this publication.