U.S. SEC’s Clarification That Liquid Staking Activities Are Not Securities Is a Landmark Decision for Blockchain

U.S. Securities and Exchange Commission (SEC) has clarified that certain liquid staking activities and associated Staking Receipt Tokens do not constitute securities under federal securities laws, specifically Section 2(a)(1) of the Securities Act of 1933 and Section 3(a)(10) of the Securities Exchange Act of 1934.

This guidance, issued by the SEC’s Division of Corporation Finance on August 5, 2025, states that liquid staking—where crypto assets are staked through a protocol or provider and a liquid staking receipt token is issued to evidence ownership—does not meet the criteria for an investment contract under the Howey Test.

The key reason is that the value of these tokens and any rewards are tied to the underlying crypto assets and protocol staking activities, not the entrepreneurial or managerial efforts of the staking provider or third parties.

As a result, participants in these liquid staking activities, including providers minting, issuing, or redeeming Staking Receipt Tokens, are not required to register these transactions with the SEC or seek exemptions, unless the underlying crypto assets are themselves part of an investment contract.

This clarification, part of the SEC’s Project Crypto initiative under Chair Paul Atkins, aims to provide regulatory clarity and has been welcomed by market participants for reducing uncertainty around decentralized finance (DeFi) protocols.

However, some, like Commissioner Caroline Crenshaw, argue that certain staking services might still be securities based on prior court rulings, highlighting ongoing debates within the SEC. By exempting liquid staking activities from securities registration, the SEC alleviates the need for staking providers and DeFi protocols.

Protocols can now operate with greater confidence, knowing that their liquid staking activities are not subject to federal securities laws, as long as the underlying crypto assets are not investment contracts. Liquid staking, which allows users to stake assets while retaining liquidity through tradable receipt tokens (e.g., stETH on Lido), is a cornerstone of DeFi.

The SEC’s stance encourages broader participation by retail and institutional investors, as the regulatory risk of staking tokens being deemed securities is diminished. This could lead to increased capital inflows into DeFi protocols, as investors gain assurance that liquid staking tokens are not subject to the same scrutiny as securities.

Developers can innovate more freely in designing staking mechanisms, yield farming strategies, and tokenized derivatives without fear of SEC enforcement actions. This fosters experimentation with new DeFi products and services. The ruling may spur the creation of more sophisticated liquid staking protocols.

Institutional investors, previously cautious due to regulatory ambiguity, may now feel more comfortable engaging with liquid staking protocols. This could drive significant capital into blockchain ecosystems, particularly Ethereum and other proof-of-stake (PoS) networks.

The SEC’s progressive stance under Project Crypto positions the U.S. as a more blockchain-friendly jurisdiction, potentially attracting projects and talent that might otherwise migrate to jurisdictions with lighter regulatory frameworks (e.g., Singapore, Switzerland). This could counter the trend of blockchain companies relocating offshore due to regulatory uncertainty.

Liquid staking enhances the utility of staked assets by allowing users to use them in DeFi while still earning staking rewards. This ruling could accelerate the growth of PoS networks, as staking becomes more accessible and appealing. Increased liquidity and participation in staking could stabilize PoS blockchains.

Liquid staking makes participating in PoS networks more attractive by eliminating the lock-up periods that deter users. With regulatory barriers lowered, more users can stake assets like ETH, ADA, or SOL while using receipt tokens in DeFi, driving adoption of PoS chains.

Liquid staking tokens are a key building block for DeFi. With the SEC’s ruling, protocols like Lido, Rocket Pool, and Ankr can scale without fear of securities violations, leading to deeper integration with lending platforms, DEXs, and yield aggregators. This could create a flywheel effect: more staked assets ? more liquid tokens ? greater DeFi liquidity ? higher yields and utility ? increased user participation.

The precedent set by the SEC’s guidance could extend to other tokenized assets, encouraging the tokenization of real-world assets (RWAs) like real estate or bonds on blockchain. If receipt tokens for staked assets are not securities, similar logic might apply to other tokenized representations, unlocking new markets.

Liquid staking tokens can be used across multiple blockchains via bridges and layer-2 solutions. The SEC’s clarity may encourage developers to create cross-chain staking protocols, enhancing interoperability and creating seamless DeFi ecosystems across networks like Ethereum, Polkadot, and Cosmos.

This ruling could revolutionize blockchain by accelerating the growth of PoS networks, expanding DeFi ecosystems, and fostering mainstream financial integration. However, ongoing vigilance is needed to address remaining regulatory nuances, security risks, and infrastructure challenges to fully realize this potential.