SEC Says Staking Activities Are Not Securities Transactions, Opening the Door for Institutions and ETFs

With a letter arguing that protocol staking activities are not securities transactions, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance has sent a clear message to traditional financial institutions and fintechs that they can get in the game.

Proof-of-stake (PoS) blockchains, such as Ethereum and Solana, are set to be the major beneficiaries, along with companies seeking SEC approval for exchange-traded funds (ETFs) that stake assets like ETH and SOL.

Issued on May 29, the SEC Division's staff statement said that staking cryptocurrency to validate blockchain transactions does not constitute a securities transaction.

“Uncertainty about regulatory views on staking discouraged Americans from doing so for fear of violating the securities laws,” said SEC Commissioner Hester Peirce, leader of the agency's new Crypto Task Force, in a statement posted on the SEC website. “This artificially constrained participation in network consensus and undermined the decentralization, censorship resistance, and credible neutrality of proof-of-stake blockchains.”

While the letter is a staff statement from one of the SEC's divisions, and not formal guidance by the SEC Commissioners, “it sends a green light to TradFi: you can finally start staking without regulatory overhang,” Alison Mangiero, head of staking policy for the Crypto Council for Innovation (CCI), told The Defiant via email.

“Banks, fintechs, and custodians now have far fewer excuses to stay on the sidelines. The message from the SEC is clear: if you’re offering staking in a way that keeps users in control of their assets, you’re not automatically triggering securities laws. That’s a game-changer for mainstream adoption,” she added.

The agency’s action came following an April letter from the CCI’s proof of stake alliance requesting clarity on this issue. It was signed by 30 firms and industry organizations, including a16z crypto, Kraken and the Solana Policy Institute.

Green Light for Banks

“I believe fintechs and banks will start examining the potential advantages and challenges to staking their clients’ crypto assets, because it will be attractive to investors looking to earn yield on their holdings,” said Leah Wald, CEO of SOL Strategies, a publicly traded Canadian firm that offers exposure to Solana staking, in an email.

“The implications will be far-reaching, accelerating the development of new financial instruments that integrate staking mechanisms, promote innovation in DeFi, and encourage broader acceptance of blockchain technologies in traditional financial systems.”

TradFi institutions will rely heavily on software from crypto-native companies, and on crypto-native intermediaries for custody and staking assets as a service, said Bill Hughes, senior counsel and director of global regulatory matters at Ethereum software firm Consensys.

In an email to The Defiant, Hughes said the letter “changes the analysis entirely” when it comes to viewing proof-of-stake tokens as investable assets.

“Now you will start to see institutions realizing — and many already have — that ETH is the digital oil to BTC's gold, and you can not only bet on the price of digital oil going up, but also you can earn additional return by putting it to work for you,” he said.

Staking ETFs More Likely

"The decision from the SEC paves the way for more ETF approvals and signals that staking is maturing into a credible asset class,” said Hadley Stern, Chief Commercial Officer at Marinade Labs, whose software was selected by Canary Capital in its Solana staking ETF filing.

Speaking via email, Stern said that “by clarifying that staking is not a securities transaction, it opens the door for more staking options across institutions and overall broader institutional adoption in the US.”

The SEC’s letter strengthens the case for spot ETFs that include staking rewards, agreed Sid Powell, CEO and co-founder of Maple Finance, in an email.

“For firms like ours that focus on institutional on-chain strategies, it also opens the door to designing more staking-based products with reduced legal friction,” he said.

No Liquid Staking

It’s important to note that the Division was very clear that it is referring to protocol staking only.

“The SEC also makes it clear that liquid staking is not appropriate for ETFs,” Stern said.

The SEC staff letter said that staked asset custodians cannot use those assets for operations or general business purposes, and that they cannot be “lent, pledged, or rehypothecated for any reason.”

It added that the assets cannot be exposed to claims by third parties, so the staked crypto custodian cannot “engage in leverage, trading, speculation, or discretionary activities.”

Disclaimer: This article has been updated to reflect the the statement on protocol staking came from the U.S. SEC's Division of Corporation Finance, not from the SEC directly, and reflects the views of the Division.