On May 29, 2025, the SEC’s Division of Corporation Finance (the “Division”) issued new guidance clarifying that certain protocol staking activities on public, permissionless networks using proof-of-stake (“PoS”) as a consensus mechanism (“PoS Networks”) are not “securities” within the meaning of Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934.
The guidance refers specifically to “Protocol Staking,” in which holders of certain types of crypto assets lock up (“stake”) such assets on PoS Networks to participate in the network’s consensus mechanism and/or maintain the technological operation and security of the network. The holders of these staked assets receive rewards in the form of newly minted crypto assets or a percentage of transaction fees for transactions on that network. The Division considered four types of staking activities: (1) solo staking, where a node operator stakes its own crypto assets; (2) staking with a third party, where an owner of a crypto asset grants its validation rights to a node operator; (3) custodial arrangements, where an owner grants both its validation rights and custody of its deposited assets to a third party; and (4) certain ancillary services offered in connection with Protocol Staking, such as allowing owners of crypto assets to aggregate their assets to meet minimum staking requirements.
The guidance clarified that these activities are not securities because they do not constitute an investment contract under SEC v. W.J. Howey Co., which requires an investment of money in a common enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. The Division determined the identified staking activities do not satisfy the Howey test because such activities are only administrative or ministerial activities that do not involve entrepreneurial or managerial efforts.
Takeaway
The statement changes the regulatory environment for Protocol Staking, which some courts had previously found to constitute investment contracts. In addition, the statement opens up room for more innovative incentives and rewards to be offered as part of Protocol Staking. But because the statement does not cover all possible types of crypto assets, staking activities and blockchain networks, crypto market participants should continue to monitor caselaw and guidance from the SEC.
