DLx News Alert: The SEC Adopts the Digital Asset Industry’s Position on Certain Protocol Staking Activities

June 4, 2025 

Last week (on May 29), the Securities and Exchange Commission (SEC) issued a non-binding staff statement (the “Statement”)^[1] indicating the agency is adopting a general policy to exclude certain types of what it calls “protocol staking” from the definition of a security under the Securities Act and Securities and Exchange Act, including:

• “Self (or solo) staking,” where token owners stake their own assets using their private keys;
• “Self-custodial staking directly with a third party,” where token owners grant validation rights to Node Operators but retain control of their tokens; and
• “Custodial staking,” where a Custodian holds the assets and stakes them on the owner’s behalf, without using those assets for any other purpose.

The Statement comes at a sea-change moment for digital assets in the United States. For years, the SEC relied on enforcement instead of clear rules, and this is the first significant move made by the Commission under new leadership. It comes at a time when Congress is also actively debating bipartisan legislation on stablecoins^[2] and broader digital asset market structure,^[3] while big global banks continue to gain exposure to the asset class and support and integrate various related emerging technologies and tokenization efforts.^[4]

The SEC’s new guidance potentially affects not only staking services providers but also the big asset management firms that have for the last year been maintaining certain digital asset-based  ETFs (‘exchange traded funds’). Due to the reservations of the SEC under previous leadership, the ETFs the Commission previously approved do not involve participation in the staking of underlying tokens in connection with PoS (‘proof-of-stake’) network infrastructures.

By recognizing the importance of staking to the security of PoS systems, the Statement signals that the current SEC likely will not be as reluctant to consider approving the incorporation of staking activities and rewards distributions on future ETF applications. Despite the clear departure from the Commission’s previous policy positions, the SEC is not likely to accept any immediate changes to digital asset ETF as they currently operate without an overhaul of their structure. This is because most digital asset ETFs are managed in grantor trusts, whereby the asset manager who establishes it, as the grantor, is considered the assets owner for purposes of income and estate tax, raising questions about how rewards could be distributed among ETF shareholders, especially when current IRS guidance requires recognition of rewards as income at the time of protocol disbursement.^[5]

See below for a breakdown of each of the exclusions addressed in the Statement.

 

Self-Staking

The Statement interprets self-staking as “merely engaging in an administrative or ministerial activity to secure the PoS Network and facilitate its operation.” The Statement notes that self-staking cannot meet the Howey test’s requirement adopted by the U.S. Supreme Court in SEC v. Howey (the “Howey test”), where an “investment contract” must involve profits to come solely from the efforts of others, because it is solely the self-staker who is engaged in the activity. In the Statement, the SEC characterizes staking “rewards” received in this context as compensation for services rendered to the network and not as passive income dependent on third-party managerial or entrepreneurial efforts.

 

Self-Custodial Staking Directly with a Third Party

The SEC’s guidance similarly treats self-custodial staking with a third party as non-investment activity under the Howey test. When a token holder delegates validation rights to a node operator but retains custody of their assets, expectation of profit still does not come from the efforts of others. The Statement explains that the node operator’s role is “administrative or ministerial in nature,” and this does not change even when the operator is staking on behalf of others. Protocol staking in this context is still not an entrepreneurial or managerial effort. As the SEC puts it, “[w]hether a Node Operator stakes its own Covered Crypto Assets or is granted validation rights from other Covered Crypto Asset owners does not alter the nature of Protocol Staking.”

 

Custodial Arrangements

The SEC explains that custodial staking arrangements resemble those where a Covered Crypto Asset owner grants validation rights to a third party but also “involve the owner granting custody of its deposited Covered Crypto Assets.” The custodian does not decide “whether, when, or how much” of the assets to stake, and instead acts solely as an agent on behalf of the owner. Moreover, the custodian’s role in taking custody and sometimes selecting a Node Operator is considered “administrative or ministerial in nature” and does not amount to entrepreneurial or managerial efforts under the Howey test. The custodian does not guarantee or fix the amount of staking rewards owed to the asset owner, though it may deduct fees from those rewards. Taken as a whole, the SEC doesn’t view these actions as providing the entrepreneurial or managerial efforts that Howey requires.

 

Ancillary Services

The SEC also extends “administrative or ministerial” classification to a variety of ancillary services that a service provider might offer to crypto holders without violating the Howey test, including:

• Slashing Coverage, which the SEC views as similar to the indemnification services “offered by service providers in many types of traditional commercial transactions”;
• Early Unbonding, which the statement describes as “merely shorten[ing] the protocol’s effective unbonding period as a convenience to the Covered Crypto Asset owner” and not a managerial activity;
• Alternate Rewards Payment Schedules and Amounts, which the SEC also now views as an “optional convenience”, provided that “the reward amounts are not fixed, guaranteed, or greater than those awarded by the protocol”; and
• Aggregation of Covered Crypto Assets, which the SEC understands as only a ministerial function to allow for users to pool enough assets to meet staking minimums.

 

Our Assessment

Although it comes with notable descent from the sole Democrat Commissioner,^[6] with this Statement, the SEC under Chair Paul Atkins’s recently assumed leadership is signaling a significant policy shift toward digital assets in comparison to his predecessor Gary Gensler.

Importantly, the Statement does not hold the same weight as formal rulemaking efforts, which require public notice and comment. Industry participants engaged in staking-related services will likely be able to rely on the Statement, however, as general guidance, because it indicates the current Commission does not view these forms of “protocol staking” as involving the offer or sale of securities under the federal securities laws.

The Statement comes after the SEC has received a significant amount of input from participants in all corners of the digital assets industry following Gensler’s resignation in January, much of it in response to the SEC Cryptocurrency Task Force’s February 21 RFI (‘request for information’), which was delivered as part of a statement from Commissioner Hester Peirce opining on the potential mischaracterization of many various digital assets as “securities” by the previous Commission.^[7] DLx Law contributed to and aided the efforts of several industry participants and policy and advocacy groups in their input to the SEC on requested exclusions for staking services, including in response to the RFI.

DLx Law generally supports the SEC’s newly [informally] adopted interpretation of the staking activities it identifies in the Statement. The firm also believes the rationale taken by the Statement naturally also ought to be extended to other forms of staking services (potentially including liquid staking) wherein those services generally further the security interests of PoS (‘proof-of-stake’”) network infrastructure underlying the tokens staked and generally pass muster under applications of the Howey and Reves tests.

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^[1] Sec. & Exch. Comm’n, Div. Corp. Fin., Statement on Certain Protocol Staking Activities (May 29, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925.

^[2] Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, S. 394, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/senate-bill/394/text.

^[3] Chairman Hill Unveils Bipartisan Digital Asset Market Structure Legislation, U.S. House Comm. Fin. Servs. (May 29, 2025), https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=409749.

^[4] See, e.g. Brady Dale, Crypto’s Quiet Workhorse Is Finally Going Mainstream, axios

(Apr. 4, 2025), https://www.axios.com/2025/04/04/stablecoins-crypto-rules-banking-mainstream; Goldman Sachs Bets on Bitcoin With $1.4 Billion via BlackRock’s ETF, TradingView: News (May 13, 2025), https://www.tradingview.com/news/u_today%3Ad5da05084094b%3A0-goldman-sachs-bets-on-bitcoin-with-1-4-billion-via-blackrock-s-etf/; MacKenzie Sigalos & Hugh Son, JPMorgan CEO Jamie Dimon Says the Bank Will Let Clients Buy Bitcoin, CNBC (May 19, 2025), https://www.cnbc.com/2025/05/19/jpmorgan-ceo-jamie-dimon-says-the-bank-will-let-clients-buy-bitcoin.html.

^[5] U.S. Treasury Dep’t: Internal Rev. Serv., Rev. Ruling 2023-14 I.R.B. 1207 (Aug. 18, 2023),  https://www.irs.gov/pub/irs-drop/rr-23-14.pdf

^[6] SEC Comm’r Caroline Crenshaw, a critic of the SEC’s recent reversals on digital assets, accused the SEC of adopting a “fake it till we make it” approach to regulation. Caroline A. Crenshaw, Response to Staff Statement on Protocol Staking Activities: Stake it Till You Make It?, Sec. & Exch. Comm’n: Speeches & Statements (May 29, 2025), https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-protocol-staking-052925. Crenshaw argues in her response to the Division of Corporate Finance’s statement that the SEC is “taking action based on anticipation of future changes while ignoring existing law,” citing court rulings in the Binance and Coinbase cases determining that staking services created “investment contracts” under Howey. See SEC v. Binance Holdings Limited, et al., 738 F. Supp. 3d 20 (D.D.C. Jun. 28, 2024); SEC v. Coinbase, Inc., 726 F. Supp. 3d 260 (S.D.N.Y. Mar. 27, 2024).

^[7] SEC Cryptocurrency Task Force Request for Information: Statement of Commissioner Hester Peirce, There Must Be Some Way Out of Here, Sec. & Exch. Comm’n: Speeches & Statements (Feb. 21, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125. In her statement, Commissioner Peirce said the SEC’s previous guidance [or lack thereof] and enforcement “artificially constrained participation in network consensus and undermined the decentralization, censorship resistance, and credible neutrality of proof-of-stake blockchains.”

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